Czarnecki v. United States
15-1381
| Fed. Cl. | Oct 13, 2017Background
- Plaintiff Jerry J. Czarnecki, a professional engineer, incurred educational expenses in 2010 while conducting research/writing for a Ph.D. in structural engineering at MIT; he did not complete the degree.
- At the time he worked for the U.S. Navy as an engineer (Systems Engineer Level 3 certified in 2010) and later left Navy employment; he became a licensed professional engineer in New York in 2008.
- Plaintiff amended his 2010 tax return in 2014 to claim a refund of $8,712 for those educational expenses as ordinary and necessary business expenses under I.R.C. § 162 and Treasury Reg. § 1.162-5.
- The IRS disallowed the refund; plaintiff sued in the Court of Federal Claims. Both parties moved for summary judgment on deductibility.
- The central factual points are undisputed: plaintiff undertook Ph.D. studies in 2010, was a Navy engineer then, had a professional license, and did not finish the Ph.D.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 2010 Ph.D. expenses are deductible under I.R.C. § 162 as "ordinary and necessary" because they maintained or improved job skills | Czarnecki: studies maintained/improved skills required by his Navy employment (continuing education; used knowledge on the job) | U.S.: plaintiff offers no direct evidence tying 2010 studies to skills required by his Navy position and had no continuing-education obligation in 2010 | Court: Plaintiff failed to prove the required direct/proximate link; summary judgment for defendant on this ground |
| Whether the expenses are nondeductible because the education would qualify plaintiff for a new trade or business under Treas. Reg. § 1.162-5(b)(3) | Czarnecki: Ph.D. was for skill improvement, not to enter a new profession; holding a Ph.D. alone does not guarantee academic employment | U.S.: objectively, completing a Ph.D. is a significant qualification for becoming a university professor (a new trade/business), so expenses are nondeductible even if skill-improving | Court: Education would have qualified him for a new trade (university professor); expenses are nondeductible; summary judgment for defendant |
Key Cases Cited
- Welch v. Helvering, 290 U.S. 111 (taxpayer bears burden to prove deductions)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting principles)
- Anderson v. Liberty Lobby, 477 U.S. 242 (standard for genuine dispute of material fact)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (inferences on summary judgment)
- Bodley v. Commissioner, 56 T.C. 1357 (education that qualifies taxpayer for a new profession is nondeductible)
- Vetrick v. Commissioner, 628 F.2d 885 (objective inquiry comparing pre- and post-education qualifications)
- Sharon v. Commissioner, 591 F.2d 1273 (education that could lead to qualifying for a new field bars deduction)
- Burnstein v. Commissioner, 66 T.C. 492 (whether education maintains or improves job skills is a facts-and-circumstances inquiry)