H1B (work visa) denied tuition as a business expense based on "Students can't deduct"

[LdiJ]

(Massachusetts)
I'm not sure the next step to take. Whether we're in the wrong, or it's time for a tax attorney, but we're in a bind here.
My GF had an F1 Student visa for 5 years (as a resident alien?), and eventually transferred to an H1B Work visa under her current employer. We've been deducting her tuition under unreimbursed business expenses (Schedule A) for the past two years since she received H1B Work Visa status and continued her school. Since her continued education is necessary for her advancement and proficiency in her field and required by her employer, it satisfies the requirements for a deduction under unreimbursed employee expenses.
This year she got audited and the [unusually difficult] woman that she was been trying to work with at the IRS has denied her $26,000 of books+tuition on the basis that her "Primary reason for entering the country is as a student, and is therefore ineligible for the deduction.
I believe that my girlfriend has many years of various visas, employers and schools ahead of her, as well as behind her, and that the IRS auditor's decision is totally subjective. It lacks any cited reference for the tax law. For 2012 she was a worker, not a student, and that's what's relevant.
I think that (unless there's a specific tax law that I'm not aware of) the only objective method to determine my GF's eligibility for the employee tax deductions is to use her visa status, and that as such, she should be allowed the deduction for 2012 when she was in the US under an H1B work visa. Her employer has already provided signed evidence of the necessity of her education to the business.

Please help! Maybe I'm wrong. Maybe we should sign the audit and let it ride, but the $5000.00 that they're fighting us over would mean a lot to us. Who do we turn to to resolve this kind of dispute?
Thank you so much for your help guys

I am a tax professional and I would not have allowed a client with your GF's situation to take an employee business expense in that scenario. That deduction is for people who are required to taking continuing education in order to keep their CURRENT job, not in order to advance in their field. Continuing education is also not the same thing as staying in school to get an advanced degree.

Also, your argument that the H1B visa proves that the education is required is and is therefore an employee business expense is an epic fail in my opinion. If that were the case then every single person in the US who was employed by virtue of having a higher education would be able to claim it as an employee business expense.

 

[davew128]

Also, your argument that the H1B visa proves that the education is required is and is therefore an employee business expense is an epic fail in my opinion. If that were the case then every single person in the US who was employed by virtue of having a higher education would be able to claim it as an employee business expense.

If anything the visa argument proves the agent's point. The education was a condition of the job.

 

[LdiJ]

If anything the visa argument proves the agent's point. The education was a condition of the job.

Absolutely, I couldn't agree more.

About the only career where I could see it being possible to use higher education expense as a Schedule A deduction is for teachers that are required to get a master's degree in order to keep their existing jobs...and most of the time they would be better off taking the Lifetime learning education credit or a Tuition and fees deduction. There may be other examples out there, but that is the only one that I can think of.

All of the rest are professionals who have to get ongoing continuing ed in order to keep up to date on new laws, procedures in their fields...lawyers, accountants, tax professionals etc. That kind of continuing ed, does not lead to further degrees. Its just continuing ed.

 

[ecmst12]

A lot of hospitals are now requiring RNs with 2 year degrees to get a BSN in order to keep their job, that would probably qualify too.

 

[LdiJ]

A lot of hospitals are now requiring RNs with 2 year degrees to get a BSN in order to keep their job, that would probably qualify too.

That might qualify too...but even in that instance they would likely be better off taking the American Opportunity Credit if it was still available to them, and the lifetime learning or tuition and fees deduction if not. I also cannot see someone getting an H1B visa for nursing or teaching...not impossible, but not likely.

 

[Neoshade]

I am a tax professional and I would not have allowed a client with your GF's situation to take an employee business expense in that scenario. That deduction is for people who are required to taking continuing education in order to keep their CURRENT job, not in order to advance in their field. Continuing education is also not the same thing as staying in school to get an advanced degree.

Also, your argument that the H1B visa proves that the education is required is and is therefore an employee business expense is an epic fail in my opinion. If that were the case then every single person in the US who was employed by virtue of having a higher education would be able to claim it as an employee business expense.

Thank you. Your first paragraph is informative and very helpful.
However, your second statement is just absurd. I'm not saying that her H1 visa status proves the legitimacy of the deduction. I'm saying that it directly contradicts the examiner's weak argument that my GF "is a student and therefore ineligible for business deductions".

I would like to point out that at no point has the IRS argued against her deduction. In fact a previous review OK'd it. The IRS agent is, however, arguing that she is ineligible for any of her employee expenses (tuition, travel, school and work expenses) because her primary reason for entering the United States is as a student...
7 years ago and multiple entries ago did my GF first take up residency. 3 years ago she left and returned under a work visa sponsored by her employer. For all intents and purposes the primary reason for her presence in the US has since been as an employee. I believe that the IRS agent's argument is flimsy and that the H1 worker visa status contradicts it. Frankly, I think she is biased against immigrants, or she would come up with a more solid standing for denying the deduction as many others on here have.
It's quite possible that deducting the tuition is not gonna fly. But frankly I expect a more legitimate reason from the IRS.

 

[Zigner]

(Massachusetts)
I'm not sure the next step to take. Whether we're in the wrong, or it's time for a tax attorney, but we're in a bind here.

Since you don't want to hear what you are being told here, I would suggest that she talk to that local tax attorney.

 

[OHRoadwarrior]

They are the IRS. They are not required to give you a response you like. Resolution is in court if you do not like what they decide.

 

[tranquility]

If:

her primary reason for entering the United States is as a student

that seems pretty clear it is not envisioned by the code.

The bottom line, is the ordinary and necessary expenses of doing business. Because of "education", training people to do a job is generally not deductible. While we can argue the nuances all day, you have an IRS decision. Fighting that takes money. Fighting that takes an argument that overcomes the presumption the Commissioner is correct. An attorney may help you, but, you are in a bad, bad place. What the actual truth is is a facts and circumstances test. Without all those, we cannot help you. Sorry. If you want to fight, see a tax attorney. I do not think he will give you anything resembling a guarantee. (Not just for ethical reasons.)

 

[Neoshade]

Thank you everyone for the help and advice.
I apologize if I've been argumentative; I've been playing an aggressive devil's advocate and all the replies and rebuttals have helped me to organize my case and better understand our circumstances. I've always enjoyed a good debate.

It seems that I am not going to have any easy time arguing against the IRS agent, but I look forward to having a good conversation with her to settle things with a much better understanding of our standing in the matter than I had yesterday.

 

[Ladyback1]

That might qualify too...but even in that instance they would likely be better off taking the American Opportunity Credit if it was still available to them, and the lifetime learning or tuition and fees deduction if not. I also cannot see someone getting an H1B visa for nursing or teaching...not impossible, but not likely.

The Nursing field is understaffed. It has been the practice of many hospitals to recruit from out of the states.