On July 7, 2011, the US Tax Court, in Estate of Lillian Baral (137 T.C. No. 1), the Tax Court offered a good refresher on the fundamentals of deducting long-term medical costs for those who qualify as “chronically ill”.
The opinion walks through a series of particular and critical definitions for this process.
The general rule of deductibility, provided under IRC Section 213, is that certain expenses paid during the taxable year for the medical care of the taxpayer or a dependent that are not compensated for by insurance or otherwise may be deducted to the extent that the expenses exceed 7.5 percent of the taxpayer’s adjusted gross income.
“Medical Care”, under IRC Section 213, includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and amounts paid for qualified long-term care services.
“Qualified long-term care services”, under IRC 7702B, means necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
A “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as meeting one of three tests: (1) being unable to perform at least two of six specified activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of at least 90 days due to a loss of functional capacity (“the ADL level of disability”); (2) having a level of disability similar to the ADL level of disability as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services (“the similar level of disability”); or (iii) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment (“cognitive impairment”).
Finally “licensed health care practitioner” is a physician, registered professional nurse, licensed social worker, or other individual who meets requirements that may be prescribed by IRS
In this particular case, while the doctor specified in his evaluation that the patient required assistance for daily living, he did not specify which activities (amongst the categories of eating, toileting, transferring, bathing, dressing, and continence) the patient could not accomplish on her own. The Tax Court did, however, refer to a doctor’s report which stated that the patient suffered from dementia, and therefore would not take her medication regularly without supervision. Therefore, the patient qualified under the 3rd test of chronically ill individual, as she required substantial supervision to protect herself from threats to her health and safety due to severe cognitive impairment. As such, the amounts paid to the caregivers were deductible by the patient as amounts paid for qualified long-term care services under IRC Section 213.
One important final note, under IRC Section 7702B, an individual who otherwise qualifies as chronically ill will not qualify unless during the preceding 12 month period the licensed health care practitioner certifies the individual meets the requirements. In Estate of Lillian Baral, although the court refers to the doctor’s notes from 3 years ago regarding the patient’s not properly taking her medication, the court does note that in the last 12 months the doctor’s evaluation states that the patient required supervision because of her memory deficit and therefore needed supervision for her health and safety. Hence, the 12 month certification requirement was satisfied.