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

[Neoshade]

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

(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

 

[davew128]

What tax form did she file, what is her occupation, and what was the nature of the specific courses, do they lead to a degree, and if so what?

 

[OHRoadwarrior]

You need to get your argument straight. As an H1 employee, with minor exception, she is supposedly doing work a US citizen could not be found to do. If she needs extra schooling to do the job, she was not qualified over a US citizen and was not eligible for the visa.

 

[Neoshade]

You need to get your argument straight. As an H1 employee, with minor exception, she is supposedly doing work a US citizen could not be found to do. If she needs extra schooling to do the job, she was not qualified over a US citizen and was not eligible for the visa.

I doubt that there is precedent for that reasoning in the tax law.
Your logic assumes that a person is only a product of their education. A person's capabilities are also influenced by their experience and talent. It's perfectly legitimate that she may have the right qualifications, experience, age, availability, and loyalty/future with the company that is not equally available among other applicants, and that she may then be asked to get additional education.
Careers commonly involve further education over time, and she has been with the company for 5 years now.

 

[Neoshade]

What tax form did she file, what is her occupation, and what was the nature of the specific courses, do they lead to a degree, and if so what?

1040, Architectural Assistant, her courses have since completed with a Masters in Interior Architectural Design, both relevant and vital to her work.
- I replied more thoroughly with a (redacted) photo of a letter from her employer, but it's pending moderation. So here's a quicker reply for now

 

[OHRoadwarrior]

You only need a 4 year degree for the job. It was not a business expense. In fact some companies require less than that.

 

[Neoshade]

You only need a 4 year degree for the job. It was not a business expense.

How so? While she did get the job with a 4 year degree, she has since increased her value to the company with an additional degree specific to the company's work. Over time her value and role in the company grows and requires further education and certification. Eventually she may get another degree in Landscape Design or a Masters in Architecture. Either one would be improve the company through her.
In a small 3-person company, she is not just an "assistant", but wears many hats and performs a number of roles as per her ever increasing capabilities and experience. With her new degree she is currently going through industry exams (NCIDQ) to become an certified Interior Designer, which will become her official title and pay grade. Thus the education was necessary and relevant to her work and growth with the company.

 

[tranquility]

1040, Architectural Assistant, her courses have since completed with a Masters in Interior Architectural Design, both relevant and vital to her work.
- I replied more thoroughly with a (redacted) photo of a letter from her employer, but it's pending moderation. So here's a quicker reply for now

One problem is "relevant and vital" are not the criteria. The education must be required by the employer to keep your present job and serve your employer's bona fide business purpose, and; maintains or improves skills needed for your present position. It cannot be to qualify you for your present position and can't be part of a program to qualify you for a different trade or business.

 

[Neoshade]

One problem is "relevant and vital" are not the criteria. The education must be required by the employer to keep your present job and serve your employer's bona fide business purpose, and; maintains or improves skills needed for your present position. It cannot be to qualify you for your present position and can't be part of a program to qualify you for a different trade or business.

That is correct. Publication 970 Chapter 12: Business Deduction for Work Related Education You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests.
- The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business pur-pose of your employer.
- The education maintains or improves skills needed in your present work.

Her education was not required to get her job. Nor does it qualify her for a new trade or business. It improves her skills needed as the company's #3 (1 Partner, 1 associate, and her) She will now get a raise and new title as Interior Designer within the company (perhaps even making Associate) once she has completed the professional certification exams that accompany this degree. Her eomployer benefits greatly from her improvement and advancement within the field.

 

[tranquility]

That seems almost definitionally NOT a valid business education expense.

 

[Neoshade]

That seems almost definitionally NOT a valid business education expense.

I don't understand. Is she not ideally qualified under the wording and the intention of the law?

 

[davew128]

You only need a 4 year degree for the job. It was not a business expense. In fact some companies require less than that.

You're making the OP's point.

Fact is, if its required by the employer, enhances the skills for the job without qualifying for a new occupation, and isn't an entry level requirement to GET the job, its deductible as a business expense.

 

[davew128]

I don't understand. Is she not ideally qualified under the wording and the intention of the law?

Did you not read your own post? She is going to get a promotion and raise as a result of the coursework. Now reasonable minds can differ on whether that's a new occupation, but you're not helping your cause here since it seems that the promotion and coursework are linked not to mention allowing her to take CERTIFICATION EXAMS.

Let me give you an example. I was an EA before finishing my graduate tax degree. The only qualification to being an EA (generally) is passing the exam. For me, the education was deductible as a business expense (or would have been if I itemized at the time). Were I to become a CPA, it would NOT have been because the coursework would have qualified the educational requirements to become a CPA (because the coursework would have been taken TO meet the CPA educational requirements).

 

[Neoshade]

Did you not read your own post? She is going to get a promotion and raise as a result of the coursework. Now reasonable minds can differ on whether that's a new occupation, but you're not helping your cause here since it seems that the promotion and coursework are linked not to mention allowing her to take CERTIFICATION EXAMS.

Let me give you an example. I was an EA before finishing my graduate tax degree. The only qualification to being an EA (generally) is passing the exam. For me, the education was deductible as a business expense (or would have been if I itemized at the time). Were I to become a CPA, it would NOT have been because the coursework would have qualified the educational requirements to become a CPA (because the coursework would have been taken TO meet the CPA educational requirements).

Interesting. As I understand it, her degree and certification make her go from a lvl 1 noob employee to a lvl 60 super employee. While people can leave a company and strike out on their own in many careers, what is relevant is that her education/certification makes her a more valuable asset to the company. She did not attain a education in a new field or market. She basically studied to become and advanced assistant architect with a company that benefits from each certification of its members. Something like 70% of all Interior Designers work at architectural firms, and most architects employee a mix of assistants, certified architects and interior designers, and the occasional structural engineer or landscape designer thrown in. An Interior Designer is an architect of interior spaces (no foundations or major exterior structure) and comprises a large portion of the architectural field.

 

[davew128]

Interesting. As I understand it, her degree and certification make her go from a lvl 1 noob employee to a lvl 60 super employee. While people can leave a company and strike out on their own in many careers, what is relevant is that her education/certification makes her a more valuable asset to the company. She did not attain a education in a new field or market. She basically studied to become and advanced assistant architect with a company that benefits from each certification of its members. Something like 70% of all Interior Designers work at architectural firms, and most architects employee a mix of assistants, certified architects and interior designers, and the occasional structural engineer or landscape designer thrown in. An Interior Designer is an architect of interior spaces (no foundations or major exterior structure) and comprises a large portion of the architectural field.

Look I don't know architecture or the occupation (other than knowing what didn't work and is deficient or ugly). The point is you need to make the case that she did NOT qualify for a new occupation. Is a Certified Interior Designer a new occupation from advanced assistant architect? I don't know, but clearly you need to prove it isn't.