Medical Deduction???

[Terry D EA]

A taxpayer who is disabled and in a wheel chair had to move from his home while modifcations were made to the home to meet his medical needs. I know the expenses to complete the necessary modifications are deductible and subject to the capital expense rules. My question is are the rental expenses incurred while the repairs are being done deductible? I personally think they should be as they are related to the home modifications. I have been searching but have not found a definitive answer. If so, will someone direct me to a publication or any other documentation to support the deductibility.

Thanks ! :wall:

[ILLMAS]

See pub 502, maybe you can call it lodging instead of rental????

http://www.irs.gov/publications/p502/ar02.html#en_US_publink1000178972

[jainen]

>>they are related to the home modifications<<

You would have to find extraordinary circumstances to pull that one off. In almost any case that would be a frivolous position. "Lodging" is only allowed when traveling to obtain medical care from a licensed doctor or facility. Construction of a capital asset might be deductible, but alternate housing would not generally be included in the basis of a capital asset. You might find such an argument in some "Pay Zero Taxes" publication, but don't rely on it without reading the exact ruling for yourself.

[Catherine]

>>they are related to the home modifications<<

You would have to find extraordinary circumstances to pull that one off. In almost any case that would be a frivolous position. "Lodging" is only allowed when traveling to obtain medical care from a licensed doctor or facility. Construction of a capital asset might be deductible, but alternate housing would not generally be included in the basis of a capital asset. You might find such an argument in some "Pay Zero Taxes" publication, but don't rely on it without reading the exact ruling for yourself.

Would that not relate to whether the home was habitable during the construction? If, for example, the power and water had to be shut down for the modifications to be safely & properly made, then I should think that lodging would be a completely reasonable position to take.

[jainen]

>>I should think that lodging would be a completely reasonable position<<

Oh, I agree--completely reasonable. How is that relevant to Terry's question about income tax deductions? ALL INCOME is taxable unless specifically excluded by law. If you can't find an applicable ruling on such an indirect medical expense, how could you possibly support it? Everything says over and over again, lodging is ONLY deductible when directly related to services by a licensed medical provider or facility.

[Terry D EA]

I agree with Janien completely which is why I posted this question to see if someone else had any prior experience, lead me to a court case, ruling etc. I also agree with Catherine's position but still cannot find anything to support it. All I find is "lodging" applied as Janien has indicated. Anyway, after further questioning of the client, they gave me the wrong year they incurred the expenses. The year the expenses were actually incurred their tax liability resulted in a refund so it doesn't matter. I am working with their 2008 return and am looking for every possible deduction to reduce the amount of tax they owe. I might add, legally and legitimately. These folks can't come up with good records so I have advised them that it is what it is and without supporting documentation, I cannot include any expenses they cannot substantiate on the return. Now with that said, I do have an engagement agreement signed that does state that I am not doing an independent verification of their information and therefore any information they give me that they "say" they have the documents for they are required to present them if asked by the taxing authorities.

[jainen]

>>I am not doing an independent verification of their information and therefore any information they give me that they "say" they have the documents... <<

In my opinion, our industry relies far too heavily on this cop-out. We love the line in Circular 230 which says, "A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client."

We are not so fond of the next sentence in that paragraph, "The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."

[Catherine]

>>I am not doing an independent verification of their information and therefore any information they give me that they "say" they have the documents... <<

In my opinion, our industry relies far too heavily on this cop-out. We love the line in Circular 230 which says, "A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client."

We are not so fond of the next sentence in that paragraph, "The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."

I have an issue right now with a client with very high unreimbursed employee business expenses for 2010. When I totalled them up, it was almost 10% of salary. This may actually be both reasonable and accurate, as it was a new job, he worked only part of the year, and he was required to come up to speed on some bizarre international computer security protocols (I don't even understand what he had to do). I have asked him to go through the list again, make sure that each item on the list was indeed required, see if there are any company papers/job offer letters/emails that show "as a condition of employment, you must complete/demonstrate competence in Protocol XYZ version 7.3". I also asked him to make certain that he has receipts (not just charge card statements) for each of these items.

The working phrase I use (with thanks to a fellow EA here in Massachusetts) is, "If I'm sitting across from an IRS agent at your audit, can you be certain to give me the documentation I need to prove each and every one of these items?" If the client answer is "Yes," then I take him at his word and tell him to keep those receipts separate and available. But I sure don't want to sit here and confirm for myself each one of the receipts (and heaven forbid that I lose one!!!).

Catherine

[jainen]

>>I sure don't want to sit here and confirm for myself each one of the receipts<<

You do not have to verify the documentation if the client's statements are consistent and otherwise credible. In the original post, Terry faced a very different situation. His clients admitted they did not have records to support their deductions, and "after further questioning" he learned that the expenses were not incurred during the tax year.

By the way, in my opinion an employee expense can be deducted as ordinary and necessary even if not verifiably required as a condition of employment.

[Catherine]

>>I sure don't want to sit here and confirm for myself each one of the receipts<<

You do not have to verify the documentation if the client's statements are consistent and otherwise credible. In the original post, Terry faced a very different situation. His clients admitted they did not have records to support their deductions, and "after further questioning" he learned that the expenses were not incurred during the tax year.

By the way, in my opinion an employee expense can be deducted as ordinary and necessary even if not verifiably required as a condition of employment.

I knew that Terry's situation was different; I was speaking of my own client. And yes, I do have clients who deduct expenses that are ordinary and necessary even if etc etc. However, with this one client and the amount SO high as a percentage of salary, I want to make doubly sure that he understands what I will need him to have ready for me if this return is called for audit. Belt, suspenders, duct tape, and staples.

[jainen]

>>Belt, suspenders, duct tape, and staples.<<

As I understand it, the IRS will still sometimes take the shirt off your back, but I don't think they pull down people's pants any more. If they try to, I can only recommend the first three things on your list.