ORANJ
An Addendum to "ORANJ Finance Committee – Report on Income Tax Deduction Survey"
2008 -- Income Tax Deduction REFERENCES
October 15, 2008
IRS Publications
References to IRS Publications are made in the report. These Publications,
502 and 530, can be obtained by mail using the Order Blank for Forms and
Publications found in Form 1040 Instruction booklet. They can also be obtained
on the web at www.irs.gov/formspubs/.
References on Medical Expense Deductions
Baker & Baker vs Commissioner of Internal Revenue Filed 2/19/04 in the U.S. Tax Court No. 448-02 – involved a dispute regarding the amount and methodology used to determine the allocable deduction as medical expense payments in the Bakers’ income tax returns.
Finzer& Finzer vs USA Tried 7/20/07 in U.S. District Court in Illinois No. 2007-2 USTC – involved a dispute regarding the amount of the entrance fee paid to their CCRC that might be properly claimed as a medical expense in the income tax return. The court found that no part of the refundable portion of the entrance fee may be considered as a medical deduction, as it is really a loan to the CCRC.
1975 IRS Ruling 75-302. 1975-2 C.B. 86 ruled that a taxpayer who paid a lump-sum life-care fee to a retirement home, which demonstrated that a certain portion of the payment for lifetime care is allocable to the retirement home’s obligation to provide medical care for the taxpayer, may deduct the allocable portion as expense for medical care in the year paid.
1976 IRS Ruling 76-481. 1976-2 C.B. 82 ruled that the portion of both lump sum and monthly fee payments made in connection with life-care residence at a retirement home is deductible in the year paid, to the extent it “is properly allocable to medical care”. Further, the IRS found that any refund of the lump sum fee attributable to a prior year medical deduction would have to be included in the taxpayer’s gross income in the year the refund was received.
1993 IRS Ruling 93-72, 1993-2 C.B. 77, 1993-94 I.R.B. 7. clarified rulings 75-302 and 76?481 in emphasizing that current payments for future medical care are deductible only if pursuant to a lifetime care contract.
“Gold at the end of the Rainbow: Medical Expenses and Below-Market Rate Loans in Continuing Care Retirement Communities”, Robert Atkins Walker and Chad F. Turner, Virginia Tax Review 1998. This article includes an examination of the history (including IRS rulings and court holdings) of the CCRC medical expense deduction and its tax effects on residents of independent living, assisted living and nursing care units at a CCRC.
The article analyzes various methods for calculating the fee percentage allocable to medical expenses from both lump sum entry fees and monthly service fees. The authors recommend that actuarially based methods be used to compute the entrance fee medical expense portion and that the expense category method be used for monthly fees. The text of this article may be found at http://www.rwalker.us/CCRC.htm. The reader is cautioned that this review comprises 45 pages of text and an additional 10 pages of references.
