Tax Court Allows Medical Deduction For Home Health Care By Non-Professionals

In the recent case, Estate of Baral v. Commissioner (137 T.C. No. 1), the United States Tax Court held that payments of almost $50,000 made to an elderly woman's caregivers qualified as deductible medical expenses under the Internal Revenue Code because the expenses were not compensated for by insurance and the services constituted qualified long-term care services as defined in section 7702B(c) of the Code.

The background of the case was as follows: Lillian Baral, now deceased, was diagnosed by her physician as suffering from dementia. The physician determined that she required round-the-clock assistance and supervision for medical reasons. Ms. Baral's brother, acting under a power of attorney, hired two unlicensed caregivers to provide 24-hour care, and the cost of that care was deducted as a medical expense on Ms. Baral's income tax return. The IRS disputed the deduction but was ultimately overruled by the Tax Court, which held the deduction to be a legitimate medical expense.

Section 213 of the Code allows a deduction for medical care to the extent expenses exceed 7.5% of adjusted gross income. In 2012 the threshold rises to 10%. Medical care is defined as including long-term care services. Section 7702B(c)(1) defines "qualified long-term care services" as necessary diagnostic, preventative, therapeutic, curing, treating, mitigation, 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 provider. According to section 7702B(c)(2), "chronically ill individual" is an individual who has been certified by a licensed health care provider as requiring substantial supervision to protect the individual from threats to health and safety due to an inability to perform at least two activities of daily living, disability or severe cognitive impairment. In the Baral case, her physician determined that Ms. Baral's dementia had left her cognitively impaired, which prevented her from properly taking her medicine. Since failure to take prescribed medicine posed a risk to her health, the physician certified Ms. Baral as requiring substantial supervision to protect her from threats to her health and safety.

In the Baral case, the court said that the services provided to Ms. Baral by her caregivers were necessary maintenance and personal care services that she needed because of her diminished capacity, and they were provided...