Written by: Sondra Cates, EA
High deductions for employee expenses are a frequent audit target, especially when they relate to education. The rules are very strict and it isn’t easy to qualify. But just because it isn’t easy doesn’t mean it isn’t possible, and it doesn’t hurt to have an excellent team available to defend you when the IRS questions it.
The member had been employed as a director of a non-profit organization. The job required a high level of education and certain certifications in order to keep the position and remain up-to-date with the current standards of the industry. That was the reason she had deducted approximately $31K of unreimbursed employee expenses, which included $29K for her continuing education. The IRS initially disallowed the deduction and billed the member for $5,000. This was based on the position that the supporting documentation was lacking corroboration from the employer.
Upon the member’s departure from the nonprofit, others had also left the organization, including the Executive Director, Deputy Director, and the Executive Committee of the Board. The new leadership of the organization knew nothing about the internal policies specific to the expenses our member had been expected to incur while performing her job duties or whether she had been reimbursed for her expenses.
Learning that she would be unable to obtain a letter of support from the nonprofit, our member was discouraged, and we were too. But we had other approaches to try and we were not ready to give up.
We encouraged the member to write a narrative explaining her situation. In another response to the IRS we included the member’s written statement, along with her job description, certification and exam requirements, and re-certification requisites. The education was not a requirement for the employer; however, it was a requirement to keep her certification and it did not qualify her for a new line of work, two key points supporting her position.
The next response we received from the IRS was a “no change” letter, informing us that the IRS was accepting the member’s tax return as originally filed. The extra effort had paid off; the deductions were allowed and our member did not have to pay anything. She was overjoyed with the result, and so were we!
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