While in medical school a student agreed to work after completing medical school for four years as a doctor in the medically underserved area of Murfreesboro, TN. In exchange for doing this the University of Tennessee College of Medicine agreed to pay his tuition and reasonable expenses. After completing his residency, he changed his mind and went into private practice. Because he didn’t live up to his agreement, the school required him to repay $121,440.
He took a deduction for the repayment on Schedule C as a ordinary and necessary business expense. The IRS disallowed the deduction and he sued the IRS in a U.S. District Court. The court upheld the IRS’s disallowance. He then appealed to the Sixth Circuit Court of Appeals. Read more