Dargie v. United States, No. 13-5608 (6th Cir. 2014)Annotate this Case
In 1993, Dr. Dargie was a student at the UT College of Medicine. In 1994, Middle Tennessee Medical Center agreed to pay Dargie’s tuition, fees, and other reasonable expenses for attending UT. After graduation and completion of his residency, Dargie was required to repay MTMC’s grant by either working as a doctor in the medically underserved community of Murfreesboro for four years or repaying two times the uncredited amount of all conditional award payments he received. MTMC paid UT $73,000 on Dargie’s behalf. After completing his medical training in 2001, Dargie chose to practice in Germantown, near Memphis. In 2002, Dargie repaid $121,440.02. In 2005, the Dargies filed an amended tax return for 2002, claiming they had “inadvertently omitted an ordinary and necessary business expense” on their Schedule C for the $121,440 repayment. The IRS disallowed the deduction under I.R.C. 162. The Dargies sued. The district court granted summary judgment to the government, finding that the repayment was a personal expense and, regardless, no deduction would be allowed under I.R.C. 265(a)(1) because the amount was allocable to income the Dargies had received tax-free. The Sixth Circuit affirmed, finding the repayment a personal expense.