The IRS acquiesced to a Tax Court decision (Jose P. Iglesias (1981) 76 TC 1060,acq. 1981-47 IRB-5) that allowed a physician who underwent psychoanalysis while a resident in psychiatry to deduct the cost as a business expense; based on the fact that it was an educational expense.

Deductible business expenses include the cost of education aimed at maintaining or improving the taxpayer’s skills in the job he already has rather than preparing him for a new trade or profession. The cost of psychoanalysis was deductible under this rule despite the fact that it was undertaken by the taxpayer in the course of a program that led to his becoming a board certified psychiatrist.

Jose Iglesias, a licensed physician, was a second-year resident in the psychiatric department of a hospital, where his duties included treating psychiatric patients. Upon completing his residence, he would be entitled to take exams to become a board certified psychiatrist. Although doctors in his program weren’t required to undergo psychoanalysis and deducted it as a business expense.

The Tax Court rejected the contention of IRS that his psychoanalysis was undertaken as part of a program of study aimed at qualifying him for a new trade, namely a psychiatric specialty. He wasn’t yet a board certified psychiatrist when psychoanalyzed but he was engaged in treating psychiatric patients and the psychoanalysis enhanced his ability to do so. Psychoanalysis wasn’t a prerequisite to board certification. As a result the court held that the cost of the psychoanalysis was incurred for education to maintain or improve his skills in the job he already held, and thus was a deductible business expense.

In another case, (Voigt, TC), a clinical social worker was entitled to a business expense deduction for the costs she incurred in undergoing psychoanalysis. The treatment did not qualify her for a new trade or business but, by relieving her own anxiety and depression and teaching her to separate her conflicts from those of her patients, enabled her to perform her job with greater skill.

The Tax Court disagreed. Education needn’t be restricted to formal instruction, and programs at psychoanalytic institutes include a student’s personal analysis. Since the analysis qualified as education, maintained and improved skills required in her profession, & didn’t qualify her for a new one, it was deductible as a business education expense.