Special Assistance Costs as a Medical Deduction

As parents, we hope our kids live a healthy life. Unfortunately, sometimes that is not always the case. We may need to enroll our children in programs to speed up their development and/or overcome disabilities. The question now becomes can those costs be deducted?

First the child needs to have a diagnosis from a doctor (1) and a recommendation for treatment. The key now is what is being treated. While ordinary education is not medical care, what would considered cost of medical care includes the cost of attending a special school for a mentally or physically handicapped individual, if his condition is such that the resources of the institution for alleviating such mental or physical handicap are a principal reason for his presence there. 

In such a case, the cost of attending such a special school will include the cost of meals and lodging, if supplied, and the cost of ordinary education furnished which is incidental to the special services furnished by the school. Thus, the cost of medical care includes the cost of attending a special school designed to compensate for or overcome a physical handicap, in order to qualify the individual for future normal education or for normal living, such as a school for the teaching of braille or lip reading. Sec 1.213-1(e)(1)(v)(a). (2)

Similarly, the Tax Court ruled applicable regulations provide that for educational costs to be treated as a medical expense the individual must attend an “institution” or “special school” with the resources for alleviating the particular mental or physical handicap and such resources must be a principal reason for the individual’s presence there (3). 

In another case, the taxpayers were denied a deduction medical care at a school that offered no special education courses for reading disabilities and where no special psychological or medical care was provided. The court stated that taxpayers must show the school is a “special school” as provided in the regulations (4).

Amounts paid by a taxpayer for treatment at a therapeutic center for alcoholism, and for meals and lodging furnished as a necessary incident to the treatment, are deductible as medical expenses (5). Also the taxpayer who joined Alcoholics Anonymous Club in his community pursuant to competent medical advice that membership was necessary for the treatment of a disease involving the excessive use of alcoholic liquors, may deduct transportation costs paid in attending the meetings of such club as medical expenses (6).

Taxpayers’ son with severe behavioral problems as a result of habitual drug use was enrolled in a school designed to address both his educational and emotional needs. Since his education was incidental to special services provided by the school, taxpayers were able to deduct the costs as a medical deduction (7).

Sometimes the severity of the condition affects the final determination. In a private letter ruling, the IRS allowed a medical deduction for the treatment of dyslexia where the condition required special education to be corrected. (8). In another case, the IRS determined that education rather than medicine or therapy was a means to offset the effect of dyslexia and disallowed the deduction (9)

The intent here is to provide a brief overview of a complex area that is often challenged by the IRS. The cases and rulings cited provide some guidance in how Code section 213 is applied. Each case is uniquely judged on the facts and circumstance of the situation which, of course, the taxpayer having a more favorable view than the IRS and is the basis for most conflicts. Please consult a tax advisor before deciding to claim any medical expense deduction in this area to see if your situation bears any resemblance to cases that have already been adjudicated. 

(1) Rev Rul 78-340 1978-2 CB 124
(2) Lawrence D. Greisdorf, 54 TC 1684
Donald R. Pfeifer TC Mem 1978-189
(3) Est of Reuben A. Baer, TC Memo 1967-34
(4) Walton vs. Commissioner TC Memo 1982-648
(5) Rev Rul 73-325 1973-2 CB 75
(6) Rev Rul 63-273 1963-2 CB 112
(7) Urbauer, Charles 1992 TC Memo 1992-170
(8) PLR 200521003
(9) Richard E. Barnes TC Memo 1978-339