Category: Deductions & Credits Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background and Issue The students use personal computers in their schoolwork. In some cases, the college requires students to obtain a computer, just as a college normally requires a student to obtain textbooks. In other cases, availability of a computer is realistically necessary but not a formal requirement. IRC Section 280F(d)(3) imposes stringent requirements on employees with respect to the deductibility of items related to listed property, including personal computers. In effect, no deductions are allowable to an employee with respect to listed property unless the employee's use of such property is A) a condition of employment, and B) for the convenience of the employer. In the case of students temporarily out of the work force, however, the employer is very much in the background at the very most. In some cases, the student has totally separated from his prior employment. For these students, there literally is no employer in the picture whatsoever. The leave-of-absence students may or may not literally be employees during this period. In any event, the employer's contact with and influence over the student during this period is likely to be minimal. The issue is how to apply the "convenience-of-the-employer" and "condition-of-employment" standards in this context. Observations and Comments In our initial conversation, you raised the issue of whether computer related educational expenses could be deducted as something other than employment related under Section 162 in order to avoid the "convenience-of-the-employer" and "condition-of-employment" problems. In my view, the only other possible logical characterization of such expenses would be under Section 212, and taxpayers have not been successful in taking this position as discussed above. The "convenience-of-the-employer" and "condition-of-employment" requirements are imposed by Section 280F(d) on employees claiming deductions in connection with listed property. Undoubtedly, some of the taxpayers in question are not literally employees, i.e., some have left the prior employer altogether and some may not technically be employees during the leave-of-absence period. One would be tempted to take the position that because such taxpayers are not literally employees during the period in question, the "convenience-of-the-employer" and "condition-of-employment" restrictions are not applicable. In my view, the position set forth above does not bear scrutiny and would not be sustained if challenged. The entire underpinning of education related deductions hinges on nexus with employment. It seems fundamentally inconsistent and thus futile to argue on the one hand that a taxpayer should be allowed a deduction which is dependent on his being engaged in the trade or business of being an employee, while at the same time arguing that restrictions applicable to employees do not apply simply because the taxpayer is not literally an employee at the exact moment of time in question. It is my view, therefore, that no matter the taxpayers' circumstances, the "convenience-of-the-employer" and "condition-of-employment" restrictions apply. As to the question of how to apply the "convenience-of-the-employer" and "condition-of-employment" restrictions in this context, I offer the following comments. First, this issue has not been addressed as far as I can tell; accordingly, what follows is necessarily untested and might or might prove persuasive if challenged. This is a very important point. Obviously, taking positions based on the untested ideas set forth could result in the imposition of penalties should these positions prove unsuccessful if scrutinized. Logically, it seems to me that the "convenience-of-the-employer" and "condition-of-employment" tests should be applied in this context as if the educational institution were the literal employer of the student. Using this logic, if a computer is a condition for admission or if a computer is an objective necessity for functioning in the particular academic environment, it seems to me logical to equate such a set of facts with the factual patterns that satisfy the "condition-of-employment" restriction. I think that one could fairly easily construct a very convincing argument that using a computer is an objective necessity in any academic environment. Thus, the "condition-of-employment" issue could be met without difficulty. On the other hand, it seems to me the "convenience-of-the employer" restriction could be more difficult for those students not literally required by the educational institution to have computers. I rather suspect that some of those institutions maintain computers for students to use. The IRS and case law on this issue is very harsh. See Rev. Rul. 86-129, 1986-2 C.B. 48 ; PLR 8816046; PLR 8725067; PLR 8710009; PLR 8629060; PLR 8615071; GCM 39518 (Dec. 15, 1985); and Bryant v. Comr., T.C. Memo 1993-597. If the taxpayer has access to an employer-owned computer to discharge his duties, the employee's ownership of a computer is not viewed as meeting the "convenience-of-the-employer" test; rather, the employee's computer ownership is viewed as a matter of personal preference by the employee. This seems to be the case no matter how inconvenient or counterproductive it might have been for the employee to use the employer's computer. |
