SCOTUS Reports

Tag: Medical Expense

  • Mattes v. Commissioner, 77 T.C. 650 (1981): Deductibility of Cosmetic Surgery as Medical Expense

    Mattes v. Commissioner, 77 T. C. 650 (1981)

    The cost of cosmetic surgery, specifically hair transplantation, qualifies as a deductible medical expense under section 213 of the Internal Revenue Code if it is a treatment for a specific physical condition.

    Summary

    In Mattes v. Commissioner, William W. Mattes Jr. sought to deduct the cost of a hair transplant procedure as a medical expense for tax purposes. The court held that the expense was deductible under section 213 of the Internal Revenue Code, which defines medical care as including treatments that affect any structure or function of the body. The court reasoned that hair transplantation, performed to treat male pattern baldness, was a legitimate medical expense despite being undertaken for cosmetic reasons. This decision highlights the broad interpretation of ‘medical care’ under the tax code and underscores the importance of distinguishing between personal and medical expenses in tax law.

    Facts

    In 1976, William W. Mattes Jr. , a 24-year-old man from Maryland, underwent a surgical hair transplant procedure to address his premature baldness, costing him $1,980. The procedure was performed by a licensed physician using local anesthesia in a medical office. Mattes claimed this expense as a medical deduction on his 1976 tax return, but the IRS disallowed it, asserting that the procedure was cosmetic and not medically necessary. Mattes then petitioned the Tax Court for a ruling on the deductibility of this expense.

    Procedural History

    Mattes filed his petition with the United States Tax Court after the IRS determined a deficiency in his 1976 federal income tax due to the disallowance of his claimed medical expense deduction for the hair transplant. The case was submitted under Rule 122 of the Tax Court Rules of Practice and Procedure, and all facts were stipulated. The court’s decision was to be entered for the petitioner.

    Issue(s)

    1. Whether the cost of a surgical hair transplant, performed to treat premature baldness, qualifies as a deductible medical expense under section 213 of the Internal Revenue Code?

    Holding

    1. Yes, because hair transplantation is a surgical procedure that affects a structure of the body and treats a specific physical condition, namely baldness, it qualifies as a medical expense under section 213.

    Court’s Reasoning

    The Tax Court interpreted section 213 broadly, defining medical care as including amounts paid for the treatment of disease or for affecting any structure or function of the body. The court noted that hair transplantation, a surgical procedure, directly affects the scalp, a part of the body, and treats the condition of baldness. The court distinguished between personal expenses and medical expenses, emphasizing that while the hair transplant was for cosmetic reasons, it was a legitimate medical treatment performed by a physician. The court cited regulations that include surgical services as deductible medical care and referenced a Revenue Ruling allowing deductions for facelifts, another cosmetic procedure. The court rejected the IRS’s attempt to distinguish hair transplants from facelifts, arguing that both procedures treat physical conditions and require medical expertise.

    Practical Implications

    This decision expands the scope of what can be considered a deductible medical expense under section 213, particularly in the realm of cosmetic surgery. It suggests that procedures undertaken for cosmetic reasons but which treat specific physical conditions may be deductible, provided they are performed by a licensed medical professional. This ruling could influence future cases involving other types of cosmetic surgery, such as breast augmentation or liposuction, when they are used to treat physical conditions. Practitioners should note that the decision underscores the need to carefully distinguish between personal and medical expenses in tax filings. Subsequent cases have cited Mattes in support of deductions for similar cosmetic procedures, reinforcing its impact on tax law regarding medical expenses.

  • Greer v. Commissioner, 72 T.C. 100 (1979): When Corporate Aircraft Use for Medical Care Is Excludable from Income

    Greer v. Commissioner, 72 T. C. 100 (1979)

    Use of a corporate aircraft for medical care under an informal health plan can be excluded from gross income if the plan’s existence and coverage are reasonably known to employees.

    Summary

    In Greer v. Commissioner, the Tax Court ruled that John L. Greer’s use of a corporate aircraft for his wife’s medical transportation was excludable from income under section 105(b) of the Internal Revenue Code. The court determined that an informal health plan existed at Kern’s Bakery of Virginia, Inc. , covering such use, despite the lack of written documentation. Additionally, the court held that Greer was engaged in the trade or business of farming for tax purposes due to his horse breeding activities, impacting his tax calculations. The case also addressed the timing of charitable deductions and the deductibility of rental expenses for medical care, setting precedents for future similar cases.

    Facts

    John L. Greer, a shareholder and former officer of Kern’s Bakery of Virginia, Inc. , used the company’s aircraft to transport his wife, Russell Z. Greer, for medical care during 1970-1972. The aircraft’s use was not reimbursed, leading to a tax deficiency notice. Greer argued the use was covered under the company’s health plan, which was informal and not written. Additionally, Greer engaged in horse racing and breeding, claiming deductions related to these activities. He also donated a race horse and bird prints, claiming charitable deductions, and sought to deduct Florida rental expenses as medical costs for his wife.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Greer’s federal income taxes for 1970-1972. Greer petitioned the Tax Court, which heard arguments on the aircraft use, farming activities, charitable deductions, and medical expenses. The court issued its decision in 1979, ruling on the issues presented.

    Issue(s)

    1. Whether Greer’s use of the corporate aircraft for his wife’s medical care was excludable from gross income under section 105(b).
    2. Whether Greer was engaged in the trade or business of farming under section 1251(e)(4) due to his horse breeding activities.
    3. Whether Greer’s charitable deductions needed adjustment.
    4. Whether Greer made a completed gift of J. Gould bird prints in 1972.
    5. Whether Greer’s Florida rental expenses were deductible as medical expenses under section 213.

    Holding

    1. Yes, because the court found an informal health plan existed at Kern’s Bakery, covering the aircraft’s use for medical transportation.
    2. Yes, because Greer’s involvement in horse breeding qualified him as engaged in the trade or business of farming.
    3. Yes, adjustments were needed due to the application of sections 170(e)(1)(A) and 1245 to the horse donations.
    4. Yes, because Greer’s intent, acceptance by the University of Tennessee, and attempted delivery in 1972 completed the gift.
    5. No, because the rental expenses were deemed personal and not deductible under section 213, following Commissioner v. Bilder.

    Court’s Reasoning

    The court applied section 105(b) and related regulations, determining that the use of the aircraft was covered under an informal health plan at Kern’s Bakery. The court noted that the plan’s existence was known to employees, satisfying the requirement for exclusion from gross income. For the farming issue, the court interpreted section 1251(e)(4) broadly, finding that Greer’s breeding activities constituted farming, impacting his tax calculations. The charitable deductions were adjusted according to sections 170(e)(1)(A) and 1245. The gift of bird prints was deemed complete in 1972, based on Greer’s intent and attempted delivery. Finally, the court distinguished the rental expense case from Kelly v. Commissioner, following Commissioner v. Bilder in disallowing the deduction as a personal expense.

    Practical Implications

    This decision clarifies that informal health plans can suffice for tax exclusion purposes if employees are reasonably aware of their existence and coverage. It impacts how corporations structure employee benefits and how the IRS audits such arrangements. The ruling on farming activities under section 1251(e)(4) affects tax planning for individuals with mixed business activities. The case also sets a precedent for determining the timing of charitable gift deductions and the deductibility of rental expenses as medical costs, influencing future cases in these areas.

  • Estate of Webb v. Commissioner, 30 T.C. 1202 (1958): Defining “Trade or Business” for Tax Purposes and the Scope of Deductions

    30 T.C. 1202 (1958)

    The frequency, substantiality, and continuity of real estate transactions can establish that a taxpayer is engaged in the trade or business of buying and selling real estate, and gains from such sales are treated as ordinary income rather than capital gains.

    Summary

    The Estate of Eugene Merrick Webb contested income tax deficiencies assessed by the Commissioner of Internal Revenue. The primary issue concerned whether Webb was engaged in the trade or business of buying and selling real estate, which would classify the profits from his real estate sales as ordinary income, or whether the sales were capital assets, generating capital gains. The Tax Court found that Webb’s extensive real estate activity, over multiple years, constituted a trade or business, thus gains were taxed as ordinary income. Further, the court addressed statute of limitations, medical expense deductions (a special diet), and the deductibility of real estate taxes. The court’s rulings clarified the application of these principles to the specific facts of the case.

    Facts

    Eugene Merrick Webb, deceased, engaged in numerous real estate transactions during the years 1946 to 1948, despite having no regular employment. He held stock and was president of two real estate corporations. Webb often purchased real estate using funds provided by others, receiving a share of the profits upon sale. He made numerous sales of real estate during these years. Webb’s health required a specific meat-based diet, which he consumed three times a day. The estate claimed medical expense deductions for the cost of the diet, as well as a deduction for real estate taxes paid in 1949. Webb reported the gains from the sale of capital assets. Webb did not advertise real estate for sale, and his sales were generally unsolicited.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Webb’s income tax for the years 1946, 1947, 1948, and 1949. The estate contested these deficiencies in the United States Tax Court. The cases were consolidated for hearing. The Tax Court reviewed the evidence presented by both parties, including Webb’s business activities, the nature of his income, and the deductibility of claimed expenses, and rendered its decisions.

    Issue(s)

    1. Whether gains from the sale of real estate during 1946 to 1948 were taxable as ordinary income or capital gains.

    2. Whether assessment of the deficiency for 1946 was barred by the statute of limitations.

    3. Whether the Commissioner erred in disallowing the cost of Webb’s meat diet as a medical expense deduction.

    4. Whether the Commissioner erred in disallowing a deduction for city and county taxes in 1949.

    Holding

    1. Yes, because the frequency and substantiality of Webb’s real estate sales demonstrated that he was in the trade or business of selling real estate.

    2. No, because Webb omitted income from his 1946 return exceeding 25% of the reported gross income, thus extending the statute of limitations.

    3. No, because the petitioners failed to prove that the diet was a medical expense beyond Webb’s normal nutritional needs.

    4. Yes, the petitioners were entitled to deduct real estate and other taxes paid in 1949.

    Court’s Reasoning

    The court determined that Webb’s real estate activities constituted a business, based on the frequency and volume of his sales and his other related business activities. The Court applied a “facts and circumstances” test, considering Webb’s substantial holdings, how the assets were acquired, and lack of any other significant source of income. The court cited *D.L. Phillips, 24 T.C. 435* to support this conclusion. Regarding the statute of limitations, the court found that the omission of income from certain real estate sales extended the period. The court emphasized that, “[W]here a taxpayer omits to report some taxable item the Commissioner is at a special disadvantage in detecting errors…” For the medical expenses, the court found a lack of evidence that the diet was a medical requirement, beyond his regular diet. Regarding the real estate tax deduction, the court clarified who was considered the taxpayer, holding the petitioners responsible for their share of the taxes.

    Practical Implications

    This case is significant for establishing criteria for determining when a taxpayer is engaged in a “trade or business” for tax purposes, particularly with real estate. Attorneys should carefully analyze the frequency, continuity, and substantiality of property transactions to classify such income. Moreover, the case illustrates how courts assess the application of the statute of limitations. It also clarifies requirements for medical expense deductions, particularly regarding the necessity of medical testimony and evidence linking expenses with medical treatment instead of normal nutritional needs. Tax advisors need to ensure that clients properly report all income, as omissions can trigger extended statutes of limitations. The court’s decision on deductibility of taxes also clarifies which party is entitled to claim a deduction. Later courts and practitioners have looked to this case when determining what constitutes a trade or business and have applied it to various types of transactions.