The IRS has always focused on tax shelters. Recently, it has also shown extensive interest in the medical expense deduction. In fact, in the last month or so, there were two revenue rulings and a letter ruling issued on the subject.
In Rev. Rul. 2003-57, the IRS concludes that laser eye surgery and breast reconstruction surgery following a mastectomy both qualify as deductible medical care. In contrast, the IRS finds that the unreimbursed cost of going to a dentist to whiten teeth isn't a medical expense.
Rev. Rul. 2003-58 involved a taxpayer with a number of medical problems. He had bought crutches to use while his injured leg was healing, bandages to cover torn skin on the leg, and a bottle of aspirin, per his doctor's instructions, to alleviate the leg pain. He also had diabetes and purchased a blood sugar test kit. Although the aspirin is nondeductible, the IRS rules that the unreimbursed cost of the crutches, bandages, and blood sugar kits are deductible.
In Ltr. Rul. 200318017, the IRS determines that expenses incurred in obtaining donated eggs for a woman who is unable to conceive children are deductible. The deductible expenses are the unreimbursed expenses for the egg donor fee, the agency fee, the donor's medical and psychological testing, the insurance for post-procedure donor assistance, and the legal fees for preparation of the contract.
I first noticed the IRS's recent fascination with medical expenses last year when it issued Rev. Rul. 2002-19, in which the cost of participating in a weight-loss program as treatment for obesity diagnosed by a physician was found to be a deductible.
It is nice that the IRS is permitting these deductions, but the problem is that for many that have incurred these expenses, the Section 213 AGI percentage limitation means they can't be taken.
But I have hope. If I can just get the IRS to consider issuing a ruling on the expense that the Tax Court considered in Daniels, 41 TC 324 (1963). The Tax Court denied a medical expense deduction for the cost of building a fallout shelter rejecting the taxpayer's argument that it should qualify as a medical expense since it would prevent radiation sickness. Just think if the IRS could hold otherwise, it could combine both their interests in one ruling permitting the literal creation of a "deductible medical expense tax shelter" so to speak.
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