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Wednesday, March 12, 2003

 


Pieter Weyts earned a law degree and a couple of months of work as a legal apprentice in Belgium. In Belgium, a law school graduate must work for 3 years as a �studiare� before qualifying for admission to the bar. He came to New York, earned an L.L.M., passed the New York, bar and got a position as a summer associate at a law firm. None of this was enough for Tax Court to consider him a �practicing attorney�, however, and he was therefor denied a deduction for education expenses under section 162 when he returned to school to get a J.D./M.B.A. degree. They figured a �summer associate� is much like a law clerk, and did not interrupt his status as a full time student. Look, I know that whether a person is carrying on a trade or business is a fact-based inquiry, fact-based inquiries are inheritly fuzzy, and just because you have a license to engage in a trade does not mean you doing so. But for the sake of clarity, it is nice to establish a bright-line rule when one makes sense. And stating that you are engaged in a trade or business when you have a license to do so and have held a full-time paid job doing that work would, I think, be a sensible bright-line rule. I fail to see what sensible bright-line rule could be reasonably extracted from this opinion. And what is with Tax Court assuming that summer associates are nothing more than law clerks? Where do they think we are, Belgium?

It seems the tax treaty between the U.S. and Belgium allows an exemption for up to $2,000 of earned income for a student for the first five years in the host country. IRS wanted to deny Mr. Weyts this exemption. Isn�t that rich? No, you can�t deduct your education expenses because you are a full-time student. And no, you can�t exclude your income because you aren�t here to study. Luckily, Tax Court rule correctly on this one, and allowed Mr. Weyts the exclusion.

Mr. Weyts was not allowed a deduction of $680 where he did not obtain a contemporaneous written acknowledgment from the donee. That�s the rules.

Mr. Wyts was also denied an education loan interest deduction where he had insufficient documentation that a loan on his parent�s home was taken out to fund his education.



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