Hill v. Commissioner
181 F.2d 906 (4th Cir. 1950)

  • Hill was a teacher in Virginia. Under Virginia law, in order to keep her teaching certificate, she had to either pass a test or take some college classes. So during summer break she took some college classes at Columbia, costing $239.
    • Columbia University was much cheaper in the 1940s.
  • When she filed her taxes, Hill deducted the $239 as a business expense. The IRS denied the deduction. Hill appealed.
    • The IRS claimed that the cost of the classes was a personal expense, and therefore not deductible.
  • The Tax Court found for the IRS. Hill appealed.
    • The Tax Court noted that under the applicable section of the tax code (now known as 26 U.S.C. 162(a)), in order to be deductible, an expense must be:
      • Incurred within the taxable year
      • Incurred in carrying on a trade or business
      • Both ordinary and necessary.
    • The Court found that taking classes at Columbia was not 'ordinary' because the majority of teachers chose to take the test, not the classes. They also found that it was not 'necessary' because Hill had the option of taking the test, it wasn't absolutely required for her to take the class.
    • The Court found that Hill wasn't technically employed as a teacher over summer break, so the classes were more to allow her to qualify for reemployment, as opposed to 'carrying on' in her current employment.
  • The Appellate Court reversed and allowed the deduction.
    • The Appellate Court looked to Virginia law on teacher certifications and found that Hill needed to take classes to retain her teaching certificate.
      • The Court found that although she had the option of taking the test instead of taking classes, that did not mean that taking classes was not 'ordinary and necessary'.
    • The Court found that Hill went to Columbia to maintain her present position, so the expenses were within the bounds of 'carrying on' her trade.
  • One could argue that Hill was involved in continuing education, and that sounds a lot like 'maintenance'. And maintenance is generally deductible as a business expense.
    • As opposed to getting a college degree in the first place, which is more like an 'improvement' which is not typically deductible as a business expense.
    • See Midland Empire Packing Co. v. Commissioner (14 T.C. 635 (1950)).