                  T.C. Summary Opinion 2003-58



                     UNITED STATES TAX COURT



                 YUANQIANG ZHANG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2117-02S.              Filed May 20, 2003.



     Yuanqiang Zhang, pro se.

     Milan K. Patel, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
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     Respondent determined a deficiency in petitioner’s Federal

income tax of $6,437 for the taxable year 2000.

     The issue for decision is whether petitioner is entitled to

deduct as trade or business expenses various costs he incurred in

connection with a Master of Business Administration (M.B.A.)

degree program.

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in New

York, New York, on the date the petition was filed in this case.

     Petitioner has earned a bachelor’s degree in engineering, a

bachelor’s degree in economics, and a master’s degree in social

science and international trade.   From January 1997 through June

1999, petitioner was with the Beijing, China, office of Andersen

Consulting, working as a consultant in the strategic services

group.   In this position, he helped foreign companies develop

joint venture strategies and financial structures for operations

in China; he advised foreign companies on Chinese tax policies;

and he helped companies develop marketing strategies for sales in

China.

     In Fall 1999, petitioner commenced studies as a full-time

student in the M.B.A. degree program at the Massachusetts

Institute of Technology, Sloan School of Management (MIT).

During the year in issue, petitioner continued as a full-time
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student in this program.   During the summer of that year, he was

employed for 10 weeks by Latona Associates, a private equity

firm, where he worked on acquisition strategies and performed

valuations of companies.   Petitioner received academic credit for

this employment.   The courses which petitioner completed as part

of the M.B.A. program covered areas including economics,

management, finance, accounting, technology and computer

networks, marketing, telecommunications, “eCommerce”,

investments, investment banking, and mergers and acquisitions.

     While enrolled in the M.B.A. program, petitioner received an

offer from the Andersen Consulting office in New York for

employment as a manager in the strategy competency group.     At

Andersen, a manager is two titles above that of petitioner’s

former position as a consultant.    Petitioner declined this offer,

accepting instead a position as an associate with the investment

banking division of Morgan Stanley.    This latter position was

offered to petitioner in 2000, contingent upon petitioner’s

completion of the M.B.A. degree program at MIT.    Petitioner

received a signing bonus during the year 2000 from Morgan

Stanley.   After completing his degree in June 2001, petitioner

began working at Morgan Stanley the following August.    When

petitioner began working at Morgan Stanley, he assisted clients

with acquiring secured financing.   Petitioner has remained

employed at Morgan Stanley as an investment banker.
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     Petitioner filed an individual Federal income tax return for

taxable year 2000 using a Form 1040NR, U.S. Nonresident Alien

Income Tax Return.   On this return, petitioner claimed a

miscellaneous itemized deduction of $34,126.     The expenses for

which this deduction was claimed were as follows, before

application of the section 67(a) limitation on miscellaneous

itemized deductions:

          M.B.A. tuition                  $29,860
          Books and school supplies         2,286
          Computer depreciation               495
          Job search expenses                 869
          Summer job expenses                 918
          Travel to school                    552
                                           34,980

In the statutory notice of deficiency, the sole adjustment was

respondent’s disallowance of this deduction.     Petitioner concedes

$169 of the M.B.A. tuition and $50.86 of the computer

depreciation, and he concedes the entire amounts of the job

search, summer job, and travel expenses.     The amounts remaining

at issue all relate to expenses petitioner allegedly incurred in

connection with the M.B.A. program.

     In general, expenses which are ordinary and necessary in

carrying on a trade or business are deductible in the year in

which they are paid.   Sec. 162(a).    Such expenses may include

educational expenses paid in carrying on the trade or business of

being an employee.   Sec. 1.162-5, Income Tax Regs.    To be

deductible, such expenses must be for education which (1)
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maintains or improves skills required by the taxpayer in his

employment, or (2) meets the express requirements of the

taxpayer’s employer, or of applicable law or regulations, imposed

as a condition to the retention by the taxpayer of an established

employment relationship, status, or rate or compensation.       Sec.

1.162-5(a), Income Tax Regs.    However, expenses which fall into

either of these categories are nevertheless not deductible if the

education (1) is required in order to meet the minimum

educational requirements for qualification in the taxpayer’s

employment, or (2) qualifies the taxpayer for a new trade or

business.   Sec. 1.162-5(b), Income Tax Regs.

     The first category of deductible expenses is for education

which maintains or improves skills required by the taxpayer in

his employment.    Sec. 1.162-5(a)(1), Income Tax Regs.   The

regulations state that this category of expenses “includes

refresher courses or courses dealing with current developments as

well as academic or vocational courses”.    Sec. 1.162-5(c)(1),

Income Tax Regs.    We find that the M.B.A. program did not serve

to maintain or improve skills required in petitioner’s employment

within the meaning of the regulations.    The courses which

petitioner completed as part of the M.B.A. program were varied

and encompassed a large number of business fields:    The courses

covered areas including economics, management, finance,

accounting, technology and computer networks, marketing,
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telecommunications, “eCommerce”, investments, investment banking,

and mergers and acquisitions.   From the record before us, we

conclude that the M.B.A. program in this case served to improve

petitioner’s “general understanding and competency”, Coughlin v.

Commissioner, T.C. Memo. 1969-80, rather than to improve specific

skills required in petitioner’s employment.   See, e.g., Menas v.

Commissioner, T.C. Memo. 1969-114 (courses in an M.B.A. program

were not directly related to the skills used by an Internal

Revenue Service agent); Coughlin v. Commissioner, supra, (courses

required for a bachelor’s degree in business administration

provided only an increase in “general understanding and

competency” and did not have a direct relation to the taxpayer’s

employment as a method and controls analyst for an insurance

company).   While the M.B.A. program did focus on “business

administration”, it was nonetheless a generalized field of study

which provided an education in a number of areas not necessarily

applicable to petitioner’s employment prior to or after the year

in issue.

     Our finding is reinforced by the fact that petitioner was

not employed on a permanent or indefinite basis while he

completed the M.B.A. program.   Prior to the program, petitioner

was a consultant for companies doing business in, or interested

in doing business in, China.    During the program, petitioner was

employed only in a temporary position in which he earned academic
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credit.   Following the program, petitioner became an investment

banker whose focus was on various secured financing strategies.

While there is certainly a degree of overlap between the

positions he held before and after the M.B.A. program, when

petitioner left his position in Beijing he did not express an

intent to return to that position after he earned the M.B.A., nor

did he know where he would be employed following the completion

of the program.   The connection between the M.B.A. program and

petitioner’s potential employment following the program was too

tenuous at that time for the education to be considered as having

maintained or improved skills required in that employment.    See

generally Schneider v. Commissioner, T.C. Memo. 1983-753

(taxpayer not carrying on a trade or business within the meaning

of section 162(a) where he resigned his commission from the Army

in order to pursue an M.B.A. and another degree with no intention

of returning to the Army).

     Because the education petitioner obtained in the M.B.A.

program did not serve to maintain or improve skills required in

petitioner’s employment, petitioner is not entitled to a

deduction pursuant to the first category of deductible expenses

under section 1.162-5(c)(1), Income Tax Regs.

     The second category of deductible expenses is for education

which meets the express requirements of the individual’s employer

or of applicable law or regulations.   Sec. 1.162-5(a)(2), Income
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Tax Regs.   The regulations provide that, within this category of

expenses:

     Only the minimum education necessary to the retention
     by the individual of his established employment
     relationship, status, or rate of compensation may be
     considered as undertaken to meet the express
     requirements of the taxpayer’s employer.

Sec. 1.162-5(c)(2), Income Tax Regs.       As discussed above, during

the year in issue petitioner had left his former employment and

had not yet started his new employment.       Thus, because petitioner

did not have an established employment relationship, status, or

rate of compensation during that year, petitioner is not entitled

to a deduction pursuant to the second category of deductible

expenses under section 1.162-5(c)(2), Income Tax Regs.

     Because petitioner’s education expenses do not fall into

either category of deductible expenses under the regulations,

petitioner is not entitled to the deductions claimed for the

M.B.A. program.   We need not address whether the expenses fall

into either of the categories of nondeductible expenses under

section 1.162-5(b), Income Tax Regs.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent.
