Do Your Clients Know They Can Deduct School-Related Medical Expenses?

Expert Julian Block discusses a variety of situations, including medical deductions for schooling, that you can use as tidbits in your conversations with your own clients.

Feb 6th 2020
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In nineteen previous columns, I discussed my use of “tax tidbits” to enliven conversations when talking taxes with clients or speaking to groups like business owners, retirees, investors and home sellers. The tidbits discuss, among other things, IRS rulings, law changes, court decisions and tactics that trim taxes for this year and even future ones.

I‘d like to share more of my favorites with you here

Medical deductions for schooling: Many of my clients mistakenly believe that the IRS limits their write-offs for medical expenses to payments for visits to doctors and dentists. Actually, says the IRS, lots of other expenditures also pass muster.

Qualifying expenditures include payments for schooling children with physical or mental handicaps. But the IRS cautions that deductibility depends on whether youngsters attend schools that are “special,” as opposed to “regular.”

How does the IRS determine that schools are special, thereby qualifying tuition outlays as allowable medical expenses? Its long-standing rule is that the main reason for attending must be to use the resources available at the schools or other institutions to prevent or alleviate handicaps. Put another way, it’s permissible for schools to provide ordinary education, as long as the learning is “incidental” to the medical care.

Some obvious examples of places that satisfy the IRS’s requirements are schools that teach Braille to the blind or lip reading to the deaf or give remedial language training to correct conditions caused by birth defects. More is at stake than just deductions for tuition. The regulations also allow deductions for the cost of meals and lodging at the school, as well as travel expenses.

Regular schooling, though, is another story. An unyielding IRS insists that you have to show that some portion of your payment is specifically for medical treatment; otherwise, no deduction for costs incurred at a school without special facilities. It matters not that a doctor believes that your handicapped child will benefit from the curriculum, disciplinary methods or other non-medical advantages available at a conventional school.

The agency takes a particularly hard line against allowing any medical deduction for a private school for a child with minor disciplinary problems. It refuses to go along with a deduction unless the child suffers from a “disease”—a term that, for tax purposes, doesn’t include minor disciplinary problems or adolescent upsets.

President Franklin Delano Roosevelt on income taxes: While Mr. Roosevelt was campaigning for a second term, he told a gathering in Worcester, Massachusetts, on October 31, 1936, that “One sure way to determine the social conscience of a Government is to examine the way taxes are collected and how they are spent. And one sure way to determine the social conscience of an individual is to get his tax-reaction. Taxes, after all, are the dues that we pay for the privileges of membership in an organized society.”

Men behaving badly: The IRS targeted Leslie Ann Ashe for taxes, interest and penalties because she and her boss had an office romance. During the affair, she received several cash payments from him. The IRS found out about the payments, as a consequence of which the twosome became a threesome.

The affair ended badly. The vengeful boss fired his subordinate. Not content with that, he intimidated her into signing over to him several checks that had been issued to her by the company’s pension plan.

And where did he deposit the checks? In his personal account.

And how did he explain the checks? They were repayments by Leslie of amounts he had “loaned” to her.  

The IRS’s always-alert computers thought otherwise. So the agency taxed the checks aggregating about $16,000 as pension distributions to Leslie. But until Leslie saw the checks, her understanding had been that the pension plan didn’t cover her.

Fortunately for Leslie, she easily bested the IRS. The Tax Court held she shouldn’t be taxed on the funds purportedly paid to her. At no point did she have control over them.

Look for more tidbits in subsequent columns.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting). 

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