                       T.C. Memo. 1997-33



                     UNITED STATES TAX COURT


               JOHN H. HUDGENS III, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 7062-94.                    Filed January 21, 1997.


     John H. Hudgens III, pro se.

     Lawrence B. Austin, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     POWELL, Special Trial Judge:   This case was assigned

pursuant to the provisions of section 7443A(b)(3) and Rules 180,

181, and 182.1




1
    Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                              - 2 -



     Respondent determined deficiencies in petitioner's Federal

income taxes for the taxable years 1990 and 1991 in the amounts

of $641 and $776, respectively.

     After concessions, the sole issue is whether petitioner is

entitled to deduct as educational expenses costs incurred

obtaining a master of laws (LL.M.) in taxation under section 162.

Petitioner resided in Columbia, South Carolina, at the time he

filed his petition.

                        FINDINGS OF FACT

     Petitioner graduated from The Citadel in 1984 with a B.S.

degree in business administration.    Soon thereafter, petitioner

enrolled at the University of South Carolina (USC).    In December

1987, petitioner graduated from USC with a J.D. degree and a

master's in taxation from the business school.    Petitioner

accepted a position on the tax staff of Arthur Andersen & Co.

(Arthur Andersen) in January 1988.    At Arthur Andersen,

petitioner spent approximately 30 to 40 percent of his time

preparing tax returns, 40 to 50 percent researching the tax law,

and the remainder consulting clients about tax matters.

     In March 1990, petitioner quit his job at Arthur Andersen.

After leaving Arthur Andersen, petitioner worked for John Shell

Associates, Inc., a temporary accounting firm for 4 weeks.

Petitioner did not plan to rejoin either firm.    He then went on

active duty with the National Guard and completed an advanced
                               - 3 -



officer training course at Fort Knox, Kentucky.    In August 1990,

petitioner enrolled at Emory University School of Law (Emory) in

Atlanta, Georgia, to obtain an LL.M. in taxation.    Petitioner

graduated with an LL.M. from Emory in May 1991.

     Prior to his graduation from Emory, petitioner began

discussions concerning the possibility of his employment with The

Southeastern Trust Co. (STC), a privately owned, State-chartered

trust company.   Because STC was a young company, it was initially

able to offer petitioner only a part-time position.    Petitioner

worked part-time for STC from September 1, 1991 to January 31,

1992.   In February 1992, petitioner became a full-time employee

of STC as one of STC's five principal trust officers.    Between

August 1, 1991 and January 31, 1992, petitioner also worked part

time for Jack Williamson & Associates (Williamson), a small

accounting firm.   Petitioner anticipated that his part-time

employment with Williamson would be temporary.    Petitioner also

attended additional National Guard annual training after his

graduation from Emory.   On his 1991 Federal income tax return,

petitioner reported income in the amount of $2,800 from 5 months'

employment at Williamson2 and $6,217 from STC.    Petitioner also

reported $7,123 of income from the National Guard activities.




2
   For 1991, petitioner reported wages in the amount of $16,140.
According to the two Forms W-2 attached, petitioner received
wages in the amounts of $6,217 from STC and $7,123 from the
Department of Defense. We assume that the remaining $2,800 was
received from Williamson.
                              - 4 -



     Hugh Z. Graham, Jr. (Mr. Graham), an executive vice-

president of the Columbia, South Carolina, office of STC

described the business of STC as

     65 to 80 -- 65 to 70 percent investment management for our
     clients.

          The rest of the services that we provide are the other
     fiduciary kinds of things that you would see in a trust
     company such as bill paying, and report making, and you
     know, investment, objective-setting, and those kinds of
     things, like that.

          And then, of course, there is the necessity to -- for
     all the peripheral things, like the fiduciary tax aspects of
     what we do * * *

     Mr. Graham further testified that (1) petitioner's duties

included account administration and primarily new business

development; (2) all of the principal trust officers performed

similar duties; (3) excluding petitioner, none of the principal

trust officers were certified public accountants or possessed a

master's degree in taxation, and only one other was an attorney;

(4) petitioner prepared most of the fiduciary tax returns for the

Columbia office; (5) petitioner served as treasurer of STC; and

(6) all of the principal trust officers provided some tax advice.

Petitioner's description of the duties he performed at STC

generally matched Mr. Graham's; however, petitioner emphasized

the tax aspects to a greater extent.

     On his 1990 and 1991 Federal income tax returns petitioner

claimed employee business expense deductions for the cost of

obtaining his LL.M. degree in the amounts of $11,476 and $13,033,
                                 - 5 -



respectively.    In the notice of deficiency respondent, among

other things, disallowed the educational expense deductions.

                                OPINION

     Section 162(a) allows a deduction for all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business.       Personal expenses are not

deductible.    Sec. 262(a).   Expenses for education may be

deductible as expenses of a trade or business if certain

requirements set forth in the regulations are met.3      See sec.

1.162-5, Income Tax Regs.     As a threshold matter, the statute

requires that a taxpayer incur the educational expenses in

"carrying on" a trade or business.       Sec. 162(a).

     Whether a taxpayer is engaged in a trade or business and the

nature of that trade or business are questions of fact.       Ford v.

Commissioner, 56 T.C. 1300, 1307 (1971), affd. 487 F.2d 1025 (9th

Cir. 1973).    A taxpayer may be in the trade or business of being

an employee.    Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

The temporary cessation of a trade or business does not preclude

a finding that a taxpayer was carrying on that trade or business

during the period of cessation.     Haft v. Commissioner, 40 T.C. 2,

6 (1963).   Thus, even an unemployed taxpayer may be considered to

be carrying on a trade or business if the taxpayer was previously



3
    Respondent does not contend that petitioner fails to satisfy
the limitations set forth in the regulations concerning the
deduction of costs for entry-level or upward-bound education.
See sec. 1.162-5(b), Income Tax Regs.
                                - 6 -



involved in and intended to return to a particular trade or

business.   Id.   In order to take advantage of what has been

described as the "hiatus" principle, a taxpayer must show that

during the hiatus he intended to resume the same trade or

business.   See Estate of Rockefeller v. Commissioner, 762 F.2d

264, 270 (2d Cir. 1985) (citing Sherman v. Commissioner, T.C.

Memo. 1977-301), affg. 83 T.C. 368 (1984).     If substantial

differences exist in the tasks and activities of the employments

undertaken before and after the period of education, then each

employment constitutes a separate trade or business.         Davis v.

Commissioner, 65 T.C. 1014, 1019 (1976).     For example, this Court

has held that a helicopter pilot is engaged in a different trade

or business than an airline pilot.      Lee v. Commissioner, T.C.

Memo. 1981-26, affd. 723 F.2d 1424 (9th Cir. 1974).     Similarly,

we have held that a licensed practical nurse is not in the same

trade or business as a registered nurse.      Reisinger v.

Commissioner, 71 T.C. 568 (1979).

     Petitioner asserts that, under the hiatus principle, he was

engaged in a trade or business as a "tax consultant" while

earning his LL.M. at Emory, because in his view he was employed

as a "tax consultant" both before and after his enrollment at

Emory.   Petitioner primarily relies on a comparison of his duties

at Arthur Andersen with his duties at STC.     Respondent contends

that the nature of petitioner's employment differed substantially
                                - 7 -



before and after the educational hiatus, and as such, the

educational expenses are nondeductible personal expenses.

       We recognize at the outset that in today's business world

the effects of tax laws are driving considerations in virtually

all decisions.    In this sense, a knowledge of the tax laws may

well be a common denominator in various professions from legal

practice as a tax lawyer, to the practice of tax accounting, to

the business of asset management, and so on.      Nonetheless, we

still recognize the separateness of these trades or businesses,

even though the lines of demarcation may become somewhat blurred.

       Regardless of how we define petitioner's occupations, we

conclude that the duties petitioner performed at Arthur Andersen

differed substantially from the duties petitioner performed at

STC.    At Arthur Andersen petitioner predominantly prepared tax

returns and researched tax issues.      In contrast, the raison

d'etre for STC was not preparing tax returns or researching

clients' tax problems; it was managing assets.      While petitioner

may have prepared some tax returns and researched some tax issues

at STC, those roles were entirely ancillary to the function of

managing client's assets and acquiring new clients.4     In sum,

petitioner's employment at STC did not constitute the same trade

or business as his employment at Arthur Andersen, because the



4
    Indeed, petitioner recognized in his opening statement that
"the duties and tasks and responsibilities at the Southeastern
Trust Company may be, in many respects, different from his duties
at Arthur Andersen".
                                 - 8 -



tasks and activities performed at STC differed substantially from

the tasks and activities performed at Arthur Andersen.

     In passing, petitioner mentions that his duties at

Williamson were not substantially different from his duties at

Arthur Andersen.   While this contention may not be disputed, it

is not dispositive of the issue before us, because the record

does not support the conclusion that petitioner's temporary,

part-time work at Williamson established him in the trade or

business of accounting after he attended Emory.       Indeed,

petitioner disavowed any intent to return to the accounting

profession at that time.   Cf. Link v. Commissioner, 90 T.C. 460

(1988), affd. without published opinion 869 F.2d 1491 (6th Cir.

1989); Reisine v. Commissioner, T.C. Memo. 1970-310.

     Accordingly, we hold that petitioner may not deduct the

educational expenses in issue.    To reflect the concessions,

                                              Decision will be entered

                                         under Rule 155.
