Academic journal article Journal of Accountancy

Medical Deduction Allowed for In-Home Personal Care

Academic journal article Journal of Accountancy

Medical Deduction Allowed for In-Home Personal Care

Article excerpt

The Tax Court held that payments made to an elderly woman's providers of personal care that she required due to her diminished capacity qualified as long-term-care services and were therefore deductible under IRC [section] 213(d)(1)(C).

Lillian Baral was diagnosed with dementia by her physician in 2004. After she was hospitalized repeatedly, the physician evaluated her ability to take her required medications and live independently. In 2006, he determined her speech was impaired and that she was confused. She also required supervision and assistance with the activities of daily living and was at risk of failing. For all these reasons, she needed 24-hour-a-day home care services, the physician said.

Baral's brother, David Baral, her attorney-in-fact, hired two caregivers who assisted Lillian Baral with bathing, dressing, trips to doctors, medications and getting in and out of a wheelchair. They also paid for miscellaneous supplies and were later reimbursed. During 2007, David Baral paid the caregivers $49,580 for their services, plus $5,566 to reimburse the miscellaneous expenses and $760 for physicians, none of which was reimbursed by insurance or otherwise.

Lillian Baral's federal income tax return for 2007 was not timely filed, and payment was not made. The Service prepared a substitute for return for 2007 and subsequently issued a statutory notice of deficiency with adjusted gross income (AGI) of $94,229 and an income tax deficiency of $17,681, with no deductions or credits other than a personal exemption and standard deduction.

In 2008, Lillian Baral died. Her estate petitioned the Tax Court, first arguing that she was not required to file a return or pay income tax for 2007 because of her dementia. …

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