Accountant and CPA not related professions?

[GradyFinance]

I am using the RTRP study guide for the real test next week. There is a ringer of a question in here I want feedback on.
Here is the question verbatim:

All of the following would qualify as a deductible work related expense EXCEPT:

A) An accountant taking a CPA prep course
B) A teacher taking courses to become qualified in an additional grade level
C) A dentist having expenses in studying to become an orthodontist
D) A lawyer taking courses to become qualified to practice in another state


Now I'm no rocket scientist but my schoolin says an accountant attempting to become a CPA is a qualified expense.

The official answer is this:
The expenses of a CPA prep course are related to qualifying the taxpayer for a new profession and are not allowable as itemized deductions.



Anybody care to chime in and explain this to me cause I'm not understanding.

[New York Enrolled Agent]

Now I'm no rocket scientist but my schoolin says an accountant attempting to become a CPA is a qualified expense.

You may feel that way but the Tax Court disagrees with you. Look at TCM 1978-425. I'll paste a sentence from the case.

"After carefully considering the evidence in light of the principles set forth in Glenn, we find that the practice of certified public accounting in Illinois is different than the practice of accounting without the benefit of certification."

There are other cases including Glenn 62 TC 270. These case all uphold the prohibition in Reg §1.162-5 regarding deductions for expenses that qualify for a new trade or business.

[ChEAr$]

not even if some of the coursework might be appropriate and helpful in accountant's present employment?

[Uncle Sam]

No - because the CPA review course is supposed to prepare you for passing a licensing exam - not continuing education of current services you're providing to clients in the normal course of business.
In addition - if you're doing strictly tax work - the CPA exam is geared mainly for financial accounting standards and auditing standard comprehension - very little is tested on income taxes.

[GradyFinance]

No - because the CPA review course is supposed to prepare you for passing a licensing exam - not continuing education of current services you're providing to clients in the normal course of business.
In addition - if you're doing strictly tax work - the CPA exam is geared mainly for financial accounting standards and auditing standard comprehension - very little is tested on income taxes.

Okay, I see some reason in that, but, how about this- A long time accountant decides to take his profession to the next level. Reasonably that next level would be becoming certified. The question does not state that this accountant is doing strictly tax work. He may be doing no tax work at all but rather possibly only bookkeeping and payroll. He decides to take some CPA classes to begin working his way to the CPA test. That would be a related field in my opinion. But then again, I dont decide tax law.

[Burke]

It's tricky, IMO. You could also make the same case for the dentist. Orthodonture is a whole new type of practice.

[AZ-Tax]

How About An Ins Agent?

I guess in a way I can see the logic but a related question was brought up in my EA class. Is your EA course and testing fees deductible. The census was that since the IRS is mandating the EA or RTRP license in order to practice tax if you are not a CPA, it becomes a qualify business related deduction.

How about someone starting a new career into insurance. Is the cost of the course, testing fee and application fee deductible on his or her new Sch C as a Insurance Agent?
What about the same Ins Agent that already has a Life insurance license and wants to add a health inurance? Seems to me to be very similar to the Dentist wanting to expand in into Ortho.

[joanmcq]

Look, a CPA is regarded as a different profession than a just plain accountant. A CPA prep course is not a series of classes in different subjects; it's an intensive course designed to get you through the CPA exam with a passing grade. It's not deductible. Ever.

Same with a Bar prep course; an attorney must pass the Bar to be licensed to practice as an attorney. an attorney is a different profession than someone with a law degree that has not passed the bar. It is the same with the CPA license and a nonlicensed accountant. The CPA license allows the CPA to do things, like sign financial statement audits, that an nonlicensed accountant cannot do, even if the to-be CPA is working in a job that will not change one iota after passing. Think of an law degree recipient working as a paralegal who passes the bar but continues working as a paralegal. The pattern of facts is not the job you are doing, but the job you are now qualified to do.

The dentist in the example is already a dentist-he or she is learning a specialty within that profession. Obtaining the medical/dental license is the stepping stone for that profession.

[ChEAr$]

No - because the CPA review course is supposed to prepare you for passing a licensing exam - not continuing education of current services you're providing to clients in the normal course of business.
In addition - if you're doing strictly tax work - the CPA exam is geared mainly for financial accounting standards and auditing standard comprehension - very little is tested on income taxes.

Ah, I missed that about it being a cpa review course.

Heck, and I even taught part of the Becker course once upon a time.

[Gary2]

Much of the point of the question is understanding that the "doesn't qualify you for a new profession" rule acts as a veto over "ordinary and necessary for my current profession," no matter how strong a case for the latter you can make.

Nevertheless, one begins to appreciate the imperfections in our system of law when you learn that there are court cases saying that for a teacher, becoming a principal is not a new profession.

The dentist/orthodontist distinction is easier to understand. A dentist (as far as I know) isn't required to get any additional licenses in order to perform orthodontic work. It's the idea of education related to a specific professional license that usually shows up (at least on exams) as triggering the "no new professions" rule.

[Snaggletooth]

Minimum Requirements

Deep within my almost-lost memory comes forth a disallowance that says "Education is not deductible if it is associated with the minimum requirements for a new job or profession. The CPA exam could not conceivably be considered as anything but.

I think the code for this was written years ago to prevent a typical college student from deducting his(her) tuition, as so many jobs and professions have as their "minimum" requirements a B.A. or B.S. or equivalent. There was a time when college was considered by the general population as a "rich man's domain" where sons and daughters could go and become filthy rich like their parents. However wrong you perceive this to be, this was widely believed across America at one time. If you are old like me, you may remember this general feeling among large segments of the population.

And of course, it follows that tuition would be a "rich man's tax break". God forbid. Time for the tax code to swoop down and disallow this specifically, and leaving the other conditions of educational deduction alone to promote an aura of supporting those who wished to better themselves on their job.

[okie1tax]

Education

@snaggletooth, "And of course, it follows that tuition would be a "rich man's tax break". God forbid. Time for the tax code to swoop down and disallow this specifically, and leaving the other conditions of educational deduction alone to promote an aura of supporting those who wished to better themselves on their job."
That is why I was glad to see the Lifetime Learning Credit be made available. Someone wants to improve their chance to increase their income, and pay more taxes, give them a little incentive!

[New York Enrolled Agent]

Nevertheless, one begins to appreciate the imperfections in our system of law when you learn that there are court cases saying that for a teacher, becoming a principal is not a new profession.

Actually, it is not the courts that have made this determination - the IRS has. Reg. §1.162-5(b)(3) specifically shows this as an example of not constituting a new trade or business.

[veritas]

Hmmm

Actually, it is not the courts that have made this determination - the IRS has. Reg. §1.162-5(b)(3) specifically shows this as an example of not constituting a new trade or business.

Do I detect the IRS was losing on this and wrote the reg to put the kabosh on those sneaky accountants?

[Gary2]

Do I detect the IRS was losing on this and wrote the reg to put the kabosh on those sneaky accountants?

A plausible speculation. Is there an easy way to track down the IRS's report (if any) associated with specific regulations? I know I've often seen IRS reports of the form "Public comment said X, we decided .5X+Y for these reasons...," but I don't know if there's a reverse index to those things if all you have is the regulation.