Rev. Rul. 78-266 -- Indirect costs not deductible1978-2 C.B. 123
Full Text - Rev. Rul. 78-266
Advice has been requested whether, under the circumstances described below, a medical expense deduction is allowable to a taxpayer for amounts paid for care of the taxpayer's children to enable the taxpayer to visit a physician for medical treatment.
The taxpayer, B, has an ailment that requires treatment in a physician's office twice weekly on a regular basis. B is the parent of three normal, healthy children under six years of age. B hires a baby sitter to care for the children each time B goes to the physician's office and receives medical treatment.
Section 262 of the Internal Revenue Code of 1954 states that, except as otherwise expressly provided, no deduction shall be allowed for personal, living, or family expenses.
Section 213(a) of the Code allows, subject to certain limitations not relevant here, a deduction for expenses paid during the taxable year, not compensated for by insurance or otherwise, for the medical care of the taxpayer or the taxpayer's spouse or dependents.
Section 213(e) of the Code defines the term "medical care" as amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body; for insurance covering such medical care; or for transportation primarily for and essential to medical care.
Section 1.213-1(e)(1)(ii) of the Income Tax Regulations provides that deductions for expenditures for medical care allowable under section 213 will be confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness.
The courts have denied a medical expense deduction for expenses that are not directly for medical care, even though the expense may have some relation to medical care. For example, in Ochs v. Commissioner, 195 F.2d 692 (2d Cir. 1952), cert. denied, 344 U.S. 827 (1952), a deduction was denied for expenditures incurred to send the taxpayer's children to a boarding school on a physician's advice to alleviate the taxpayer's spouse's suffering from throat cancer that required her to rest her voice. In McVicker v. United States, 194 F. Supp. 607 (S.D. Cal. 1961), a deduction was denied for the taxpayers' payments to a domestic servant hired on a physician's advice that housework would cause a relapse of the taxpayer-wife's illness. In Wendell v. Commissioner, 12 T.C. 161 (1949), a medical expense deduction was denied for salaries paid to practical nurses employed to care for a child whose mother died at childbirth, the child being normal and having no unusual illness.
In Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969), the court permitted a medical expense deduction for legal expenses necessary to establish guardianship for the taxpayer's wife, a mental patient, in order to keep her in a mental institution for care. Rev. Rul. 71-281, 1971-2 C.B. 165, announces that the Internal Revenue Service will follow Gerstacker. The facts in the instant care are distinguishable from Gerstacker and Rev. Rul. 71-281 because in Gerstacker the expense was essential to the medical treatment of the person for whom the expense was incurred in that the payment for legal services for the taxpayer's wife was made to obtain the medical treatment.
In the instant case, as in Ochs, McVicker, and Wendell, the expenditures for the care of B's children are not expenses for medical care, even though the expenditures have some relation to medical care. Accordingly, a medical expense deduction is not allowable to B for amounts paid for the care of B's children to enable B to visit a physician for medical treatment. Such expenditures are personal expenses within the meaning of section 262 of the Code and, therefore, are nondeductible.
Rev. Rul. 73-597, 1973-2 C.B. 69, similarly denies a charitable contributions deduction under section 170 of the Code for amounts paid for a baby sitter to care for the taxpayers' children to enable the taxpayer to perform gratuitous services for a charitable organization to which contributions are deductible.
Rev. Rul. 71-281 is distinguished.
IRS Publication 502- excerptshttp://www.irs.gov/formspubs/page/0,,id=11563,00.html (link to full document)
http://www.irs.gov/publications/p502/index.html (newer link)
Some relevant portions copied here:
Disabled Dependent Care ExpensesSome disabled dependent care expenses may qualify as medical expenses or as work-related expenses for purposes of taking a credit for dependent care. You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction.
Learning DisabilityYou can include in medical expenses tuition fees you pay to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders. Your doctor must recommend that the child attend the school. See Schools and Education, Special, later.
You can also include tutoring fees you pay on your doctor's recommendation for the child's tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities.
Schools and Education, SpecialYou can include in medical expenses payments to a special school for a mentally impaired or physically disabled person if the main reason for using the school is its resources for relieving the disability. You can include, for example, the cost of:
You cannot include in medical expenses the cost of sending a problem child to a special school for benefits the child may get from the course of study and the disciplinary methods.
TherapyYou can include in medical expenses amounts you pay for therapy you receive as medical treatment.
“Patterning” exercises. You can include in medical expenses amounts you pay to an individual for giving “patterning” exercises to a mentally retarded child. These exercises consist mainly of coordinated physical manipulation of the child’s arms and legs to imitate crawling and other normal movements.
Legal FeesYou can include in medical expenses legal fees you paid that are necessary to authorize treatment for mental illness. However, you cannot include in medical expenses fees for the management of a guardianship estate, fees for conducting the affairs of the person being treated, or other fees that are not necessary for medical care.
[Note: In 2008, the IRS allowed the deduction of legal fees to establishment of a guardianship when the purpose of the proceeding was directly related to the provision of medical treatment. 2008-0033.]
Internal Revenue Service Regulations, 26 CFR 1.213-1
Contains examples of how to calculate the deduction. Definitions start in 1.213-1(e).
Dependent and Child Care CreditThis credit is better than a deduction since it is a credit to your taxes instead of a reduction of taxable income. It is designed to reimburse parents who work for costs of child care while the parents work. Credits average about $600 but can go as high as $2,100. The calculation is based on your expenses of $3,000 for one child and $6,000 for two or more children.
Ordinarily the credit is available only for children under the age of 13, but the credit is available to a dependent of any age who is "physically or mentally not able to care for himself," namely: "Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves."
You can include costs of outside day care, after-school
Section 213. Medical, dental, etc., expenses (Full text)(a) Allowance of deduction
There shall be allowed as a deduction the expenses paid during
the taxable year, not compensated for by insurance or otherwise,
for medical care of the taxpayer, his spouse, or a dependent (as
defined in section 152), to the extent that such expenses exceed
7.5 percent of adjusted gross income.
(b) Limitation with respect to medicine and drugs
An amount paid during the taxable year for medicine or a drug
shall be taken into account under subsection (a) only if such
medicine or drug is a prescribed drug or is insulin.
(c) Special rule for decedents
(1) Treatment of expenses paid after death
For purposes of subsection (a), expenses for the medical care
of the taxpayer which are paid out of his estate during the
1-year period beginning with the day after the date of his death
shall be treated as paid by the taxpayer at the time incurred.
Paragraph (1) shall not apply if the amount paid is allowable
under section 2053 as a deduction in computing the taxable estate
of the decedent, but this paragraph shall not apply if (within
the time and in the manner and form prescribed by the Secretary)
there is filed -
(A) a statement that such amount has not been allowed as a
deduction under section 2053, and
(B) a waiver of the right to have such amount allowed at any
time as a deduction under section 2053.
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,
(B) for transportation primarily for and essential to medical
care referred to in subparagraph (A),
(C) for qualified long-term care services (as defined in
section 7702B(c)), or
(D) for insurance (including amounts paid as premiums under
part B of title XVIII of the Social Security Act, relating to
supplementary medical insurance for the aged) covering medical
care referred to in subparagraphs (A) and (B) or for any
qualified long-term care insurance contract (as defined in
In the case of a qualified long-term care insurance contract (as
defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (10)) shall be taken into
account under subparagraph (D).
(2) Amounts paid for certain lodging away from home treated as
paid for medical care. - Amounts paid for lodging (not lavish or
extravagant under the circumstances) while away from home
primarily for and essential to medical care referred to in
paragraph (1)(A) shall be treated as amounts paid for medical
care if -
(A) the medical care referred to in paragraph (1)(A) is
provided by a physician in a licensed hospital (or in a medical
care facility which is related to, or the equivalent of, a
licensed hospital), and
(B) there is no significant element of personal pleasure,
recreation, or vacation in the travel away from home.
The amount taken into account under the preceding sentence shall
not exceed $50 for each night for each individual.
(3) Prescribed drug. - The term ''prescribed drug'' means a
drug or biological which requires a prescription of a physician
for its use by an individual.
(4) Physician. - The term ''physician'' has the meaning given
to such term by section 1861(r) of the Social Security Act (42
(5) Special rule in the case of child of divorced parents, etc.
- Any child to whom section 152(e) applies shall be treated as a
dependent of both parents for purposes of this section.
(6) In the case of an insurance contract under which amounts
are payable for other than medical care referred to in
subparagraphs (A), (B), and (C) of paragraph (1) -
(A) no amount shall be treated as paid for insurance to which
paragraph (1)(D) applies unless the charge for such insurance
is either separately stated in the contract, or furnished to
the policyholder by the insurance company in a separate
(B) the amount taken into account as the amount paid for such
insurance shall not exceed such charge, and
(C) no amount shall be treated as paid for such insurance if
the amount specified in the contract (or furnished to the
policyholder by the insurance company in a separate statement)
as the charge for such insurance is unreasonably large in
relation to the total charges under the contract.
(7) Subject to the limitations of paragraph (6), premiums paid
during the taxable year by a taxpayer before he attains the age
of 65 for insurance covering medical care (within the meaning of
subparagraphs (A), (B), and (C) of paragraph (1)) for the
taxpayer, his spouse, or a dependent after the taxpayer attains
the age of 65 shall be treated as expenses paid during the
taxable year for insurance which constitutes medical care if
premiums for such insurance are payable (on a level payment
basis) under the contract for a period of 10 years or more or
until the year in which the taxpayer attains the age of 65 (but
in no case for a period of less than 5 years).
(8) The determination of whether an individual is married at
any time during the taxable year shall be made in accordance with
the provisions of section 6013(d) (relating to determination of
status as husband and wife).
(9) Cosmetic surgery. -
(A) In general. - The term ''medical care'' does not include
cosmetic surgery or other similar procedures, unless the
surgery or procedure is necessary to ameliorate a deformity
arising from, or directly related to, a congenital abnormality,
a personal injury resulting from an accident or trauma, or
(B) Cosmetic surgery defined. - For purposes of this
paragraph, the term ''cosmetic surgery'' means any procedure
which is directed at improving the patient's appearance and
does not meaningfully promote the proper function of the body
or prevent or treat illness or disease.
(10) Eligible long-term care premiums. -
(A) In general. - For purposes of this section, the term
''eligible long-term care premiums'' means the amount paid
during a taxable year for any qualified long-term care
insurance contract (as defined in section 7702B(b)) covering an
individual, to the extent such amount does not exceed the
limitation determined under the following table:
In the case of an individual with an attained age before the
close of the taxable year of: is:
40 or less $ 200
More than 40 but not more than 50 375
More than 50 but not more than 60 750
More than 60 but not more than 70 2,000
More than 70 2,500 .
(B) Indexing. -
(i) In general. - In the case of any taxable year beginning
in a calendar year after 1997, each dollar amount contained
in subparagraph (A) shall be increased by the medical care
cost adjustment of such amount for such calendar year. If
any increase determined under the preceding sentence is not a
multiple of $10, such increase shall be rounded to the
nearest multiple of $10.
(ii) Medical care cost adjustment. - For purposes of clause
(i), the medical care cost adjustment for any calendar year
is the percentage (if any) by which -
(I) the medical care component of the Consumer Price
Index (as defined in section 1(f)(5)) for August of the
preceding calendar year, exceeds
(II) such component for August of 1996.
The Secretary shall, in consultation with the Secretary of
Health and Human Services, prescribe an adjustment which the
Secretary determines is more appropriate for purposes of this
paragraph than the adjustment described in the preceding
sentence, and the adjustment so prescribed shall apply in
lieu of the adjustment described in the preceding sentence.
(11) Certain payments to relatives treated as not paid for
medical care. - An amount paid for a qualified long-term care
service (as defined in section 7702B(c)) provided to an
individual shall be treated as not paid for medical care if such
service is provided -
(A) by the spouse of the individual or by a relative
(directly or through a partnership, corporation, or other
entity) unless the service is provided by a licensed
professional with respect to such service, or
(B) by a corporation or partnership which is related (within
the meaning of section 267(b) or 707(b)) to the individual.
For purposes of this paragraph, the term ''relative'' means an
individual bearing a relationship to the individual which is
described in any of paragraphs (1) through (8) of section 152(a).
This paragraph shall not apply for purposes of section 105(b)
with respect to reimbursements through insurance.
(e) Exclusion of amounts allowed for care of certain dependents
Any expense allowed as a credit under section 21 shall not be
treated as an expense paid for medical care. top
IRS Circular 230 Disclosure: United States Treasury Regulations provide that a
This page lists articles of interest to parents of children with disabilities. We hope you are able to use the information here as a start to getting a little bit more help for your childre. Please remember that tax laws are complicated and it is best if you consult your tax professional if you have any questions. Nothing here creates an attorney-client relationship.
Introduction to deducting medical expenses
About Tax Credits
One example: can you deduct the cost of diapers?
Analyzing the Illinois Education Credit
Deducting the cost of special schools
Freedom of Information Act
Extended School Year - coming soon
About Special Needs Trusts -coming soon
Using the ADA for Parents of Children with Disabilities
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