A mental health professional, having already met all the requirements to practice her profession, decides to undergo psychotherapy. Does the expenditure qualify as an educational expense?
The question was recently presented to the U.S. Tax Court. According to Sheldon Whitman, Accountant of the Association who commented on the case,* if qualified, the item would be considered a deductible business expense. Disallowed, it might qualify as a medical expense (an area not detailed herein), but then would be subject to limitations before it could be deducted.
The taxpayer, a mental health professional, had undergone psychoanalysis. Although it was not a requirement for her position, she argued, through a “deeper self-understanding” she could recognize her own problems, separate them from those of her patients, and therefore improve her skills and treat her patients on a higher level of effectiveness.
The Internal Revenue Service argued that the taxpayer's psychoanalysis did not qualify as an educational expense as defined in the federal tax regulations. To qualify, education should be directly and primarily related to maintaining or improving skills required in her profession. In addition, IRS contended, the expense failed to qualify because it was not at an “accredited psychoanalytic institute.”
The Tax Court disagreed with the IRS: Education does not have to be restricted to formal instruction. The Tax Court said a deeper understanding would lead to a direct improvement in her ability to diagnose and treat patients. Accordingly, the Tax Court concluded, “Where a professional like (taxpayer) practices psychotherapy and, to increase her skills, undergoes psychoanalysis, there is an integral relationship between the education involved and her employment. By contrast, where another taxpayer not primarily engaged in diagnosing and treating patients' personality problems attempts to deduct psychoanalytic expenses, the required nexus between the education and employment would be lacking and the deduction would be disallowed.”**
* The case was reported in The Wall Street Journal, May 22, 1980.
** ( (1980) 74TC No. 9).