Current Federal Tax Developments

View Original

Medical Deduction Allowed for Treatments Not Generally Recognized as a Conventional Treatment

The fact that a medical treatment may not be recognized as a proper treatment by medical authorities does not mean that federal tax law will deny the taxpayer a deduction for such expenses.  In a bench opinion, the Tax Court in the case of Malev v. Commissioner, Tax Court Case No. 1282-16S held that the taxpayer would be allowed a deduction for such expenses even though the only diagnosis she cited as evidence of her condition took place after the treatments in question, calling into question her belief that her unusual treatment had cured her.

The Court noted that the treatments the taxpayer sought to deduct related to her spinal conditions were outside the norm, noting:

Concerned that conventional treatments for her condition posed too much risk, or were or would be ineffective, Petitioner subscribed to various forms of treatment from four individuals, none of whom would be commonly recognized as a conventional medical caregiver. And to be sure, none of the methods utilized by these individuals would commonly be recognized as a conventional medical treatment. The methods Petitioner subscribed to might be termed “alternative medicine” by the polite, but we expect the less tolerant would characterize the treatments in other than legitimate or complimentary terms.

Medical care is defined by IRC §213(d)(1)(A) in part:

(d) Definitions

For purposes of this section—

(1) The term “medical care” means amounts paid—

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body…

Reg. §1.213-1(e)(1)(ii) specifically provides that a deduction is allowed for “healing services” but denies a deduction for any expenditure that is “merely beneficial to the general health of an individual…”

The fact a treatment isn’t generally recognized as appropriate or effective is not a block to its deduction.  As the opinion notes that payments for “alternative medical” treatments may be deducted, citing the cases of Dickie v. Commissioner, T.C. Memo. 1999-138; Crain v. Commissioner, T.C. Memo 1986-138; and Tso v. Commissioner, T.C. Memo 1980-399.

The one quirk in this case is that the diagnosis cited by the taxpayer that showed she had a medical condition took place after the medical treatment for which she was attempting to claim a deduction.  The opinion describes that diagnosis:

In a diagnosis dated November 25, 2016, which is after the year in issue, her medical doctor suggested surgery as a remedy, but advised her that the surgery “does not come with complete success, and carries the possibility of worsening” Petitioner’s condition. Petitioner’s medical doctor further “recommended” “integrative medical care.” According to Duke University, “Integrative medicine is an approach to care that puts the patient at the center and addresses the full range of physical, emotional, mental, social, spiritual and environmental influences that affect a person’s health. Employing a personalized strategy that considers the patient’s unique conditions, needs and circumstances, it uses the most appropriate interventions from an array of scientific disciplines to heal illness and disease and help people regain and maintain optimum health.”

The Court noted that if this diagnosis had taken place before the treatment then the deduction would clearly be allowable. 

But, in the end, the Court found that the taxpayer’s belief that the treatments she received would be, and in her testimony, were effective were key:

We are more persuaded by Petitioner’s belief as to the effectiveness of the treatments she paid for than we are by our own impression as to those treatments. At trial, she testified that her condition had greatly improved as a result of the treatments.

The Court noted that “the diagnosis came later, and it seems to speak in the time frame in which it was made, which would undermine, at least to some extent, Petitioner's claim to have been cured by the treatments she was received several years earlier.” 

While the Court claimed the timing of the diagnosis presented no easy resolution to the case, the Court in the end ruled in favor of the taxpayer. But the Court did note that the IRS position was not clearly unjustified.

The best lesson to take from this is likely that advisers need to remind clients of the importance of getting independent evidence of a medical condition being treated if they want to take a deduction for medical expenses.  This taxpayer’s deduction appears to have been put at risk because she appears to have “self-diagnosed” the condition and selected a treatment. 

The risk is that such treatments may appear to fall under the “merely beneficial to the general health” of the taxpayer umbrella when the treatment cannot be tied to a specific condition of the taxpayer in a way that shows it is meant to treat that condition.