Court rules on deductibility of long-term care expenses

In a recent case, the Tax Court ruled that payments made to caregivers for providing physician-ordered assistance and supervision to a patient suffering from dementia qualified as long-term care services and were thus deductible amounts paid for medical care. The court reached this conclusion despite the fact that the caregivers were not medical professionals.

Expenses for medical care not compensated for by insurance may be claimed as an itemized deduction to the extent they exceed 7.5 percent of adjusted gross income. Medical care is defined broadly as 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" are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which are: (i) required by a "chronically ill" individual and (ii) provided under a plan of care prescribed by a licensed healthcare practitioner.

A chronically ill individual is one who has been certified within the previous 12 months by a licensed healthcare practitioner as:

  • Being unable to perform, without "substantial assistance" from another individual, at least two activities of daily living for at least 90 days due to a loss of functional capacity.
  • Having a similar level of disability as determined under IRS regulations prescribed in consultation with the Department of Health and Human Services.
  • Requiring "substantial supervision" to protect the individual from threats to health and safety due to "severe cognitive impairment," even if the individual is physically able. Severe cognitive impairment includes Alzheimer's disease and other similar forms of irreversible dementia.
  • Lillian Baral was diagnosed with dementia. Her primary physician determined that her ability to communicate orally was impaired, she was confused, she required assistance with activities of daily living, she required supervision due to her memory deficit, she was at risk of falling and couldn't be left alone and she required baseline homecare services. Accordingly, the physician determined that she required assistance and supervision 24 hours a day for medical reasons and for her safety.

During 2007, approximately $50,000 was paid to two caregivers for their services assisting Baral. Although the caregivers were not licensed healthcare providers, and the payments to them were not for the diagnosis, cure, mitigation, treatment or prevention of Baral's disease, the payments nonetheless satisfied the requirements to be considered qualified long-term care services.

The court first found that Baral was a chronically ill individual, as described in the tax law. The court then found that the caregivers' 24-hour services qualified as "maintenance or personal care services," provided on account of Baral's diminished capacity and pursuant to a plan of care prescribed by her physician, a licensed healthcare practitioner. Estate of Lillian Baral v. Commissioner, 137 T.C. No. 1, July 5, 2011.

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