An audit notice from the Internal Revenue Service can send shivers down the spine of even the steeliest taxpayer. But with a daughter entering college and hard-earned dollars at stake, Lori Singleton-Clarke decided to fight the U.S. tax collection agency on a nearly $15,000 deduction she knew she deserved. Singleton-Clarke was not upset or worried when she learned of the impending audit. “I thought somehow they didn’t have all the paperwork,” she recalls.
It was December 2006 when the 48-year-old Bryantown, Maryland, registered nurse received her first audit letter from the IRS. The missive informed Singleton-Clarke that the U.S. government was disputing a deduction she claimed for tuition paid to the University of Phoenix toward her online M.B.A. studies in 2005.
The dispute rested on several passages in IRS Publication 970, which states that educational expenses are tax deductible if they are to maintain or improve skills in your work. The IRS disqualifies educational expenses related to any program of study which will qualify taxpayers for a new career. Singleton-Clarke says the IRS couldn’t understand why a nurse would need a master’s in business administration.
Singleton-Clarke, who has been a nurse for more than 25 years, decided to fight the IRS. Meanwhile, she was completing the final year of her M.B.A. program with a specialization in health care management, and her daughter was about to enter college. Costly legal representation was not an option.
Instead, Singleton-Clarke used the letter of the law—in this case, the federal tax code—as her main defense. She would have to prove that her M.B.A. was relevant to her nursing career. Singleton-Clarke was meticulous in her dealings with the IRS. To prepare for the courtroom battle, she armed herself with multiple copies of tuition receipts, school transcripts, and annual evaluations showing that her business studies improved her performance as a nurse. She also identified specific pages in the 2005 Publication 970 that she planned to cite in court.
In November 2008, after several volleys of correspondence and a meeting with an IRS appeals officer, the U.S. Tax Court in Washington, D.C. heard her case.
Though somewhat in awe of the proceedings and personnel in attendance, Singleton-Clarke was not shaken. “My strategy was to show my undergraduate degree and the courses that I took. I wanted the court to see that I’m using my skills as a nurse, but I need that business knowledge as well.”
Singleton-Clarke’s court hearing lasted just one hour. It took until early December 2009 to find out that she won her case—a considerable feat. Only 10% of about 300 of such cases were decided in the defendant’s favor in 2009, according to Tax Analysts, a nonprofit tax news and analysis firm in Falls Church, Virginia.
Preparation meant the difference in Singleton-Clarke’s victory, says Donna Hankins, a tax expert with Hankins Associates Inc. in Oakland, California. “That’s typically where people fall very short. They haven’t prepared themselves to defend their position,” she says.
For Singleton-Clarke, the lesson was clear. “Be very respectful of the process,” she says. “No matter how frustrating it is, stay cool.”
This article originally appeared in the April 2010 issue of Black Enterprise magazine.