The Capital Nature of Educational Expenses

Taxpayer, a practicing psychiatrist and part-time teacher of psychiatry, undertook a six year training program in psychoanalysis at the Boston Psychoanalytic Institute. In 1961, he deducted $3,650 paid in fees to the Institute as a business expense under section 162 of the Internal Revenue Code. Although taxpayer contended that the expenses were incurred primarily to maintain or improve skills required in his profession, the Commissioner disallowed the deduction. A sharply divided Tax Court upheld the disallowance, relying on two prior cases holding that when a psychiatrist undertakes training in psychoanalysis, he manifests an intent to acquire a specialty, not to maintain or improve existing skills. The Tax Court majority emphasized two points in taxpayer\u27s testimony it found fatal to the claimed deduction: he failed to testify that he did not intend to practice psychoanalysis upon graduation from the Institute; and he failed to say that his primary purpose for taking the training was to improve his psychiatric skills. On appeal to the First Circuit Court of Appeals, a unanimous court reversed. Held: Acquiring a specialty is not necessarily inconsistent with improving or maintaining existing skills; taxpayer\u27s unrebutted testimony established that his purpose in studying psychoanalysis was to improve his psychiatric skills; thus, the expense is deductible. Greenberg v. Commissioner, 367 F.2d 663 (1st Cir. 1966) .