Tax Research Assignment #1
Facts
Ima Nurse is a registered nurse who has been working as a Medicare reimbursement specialist at a hospital since 2008. She has enrolled in an MBA program for two reasons: 1) to increase her financial knowledge and skills needed in her current position and 2) to increase her managerial skills in order to enhance her prospects of eventually obtaining her supervisor’s position. An MBA degree is not a specific requirement for the supervisory position. During 2011, she paid $10,500 for tuition and fees at UMSL. Her employer, the hospital, reimbursed her 60% of tuition costs or $6,300 as part of their education assistance program and this amount was not included in Ima’s Form W-2 wages.
Issues
1. What portion of the $6,300 reimbursement (if any) needs to be included in Ima’s gross income on Form 1040 and does she need to pay taxes on it? 2. Is the amount she paid in tuition and fees - $10,500 – fully deductible from AGI or toward AGI, partially deductible from AGI or toward AGI, or not deductible at all?

Analysis of Applicable Law and Authority 1. ISSUE 1: What portion of the $6,300 reimbursement (if any) needs to be included in Irma’s gross income on Form 1040 and does she need to pay taxes on it? According to IRC Section 127, an employee is allowed to exclude from gross income up to $5,250 annually of employer-paid education expenses (mainly tuition, books and supplies) under an education assistance program. Therefore, since Ima received reimbursement from her employer under an education assistance program, she can exclude $5,250 out of the $6,300 under this section.
The remaining reimbursement balance of $1,050 can be excluded from her gross income under another section that provides for the exclusion of employer-paid education expenses - IRC Section 132. According to Sec 132 (j) (8) employer-paid education expenses