Private School Tuition for Special School

1. Private School Tuition for Special School Often, parents incur the costs of specialized schooling for their dependent children because of a medical condition. Education is not normally viewed as medical care. However, when a physician recommends special education to correct a medical condition, the education constitutes deductible medical care [Reg. 1.213-1(e)(1)(v)(A)].

2. The Lab School Deducting Tuition as a Medical Expense IRC §213

3. Case …Elizabeth had very little confidence in herself and did not believe she was very intelligent. In truth, testing indicated that her intellectual capabilities were better than average. Despite this fact, she had a poor attention span at school and daydreamed excessively. Seldom, if ever, did she experience scholastic success…

4. Case ……..continued …Although Elizabeth’s parents were not rich, they attempted to provide her the assistance and support she required. They enrolled her in summer school for corrective help in Arithmetic and English.…

5. Case……..continued … The results of this special instruction were not totally satisfactory… The petitioners, Elizabeth’s parents, took Elizabeth to a doctor for therapy... The doctor, after 12 evaluation sessions, diagnosed Elizabeth as having and “recommended that she attend a school such as the ZZZ School for further treatment.”….

6. Medical Expenses Utilizing the IRS Code to Reduce Our Tax Burden IRC §213

7. Definition of Medical Care Generally, medical care is defined as an amount paid for (1) the diagnosis, cure, mitigation, treatment, or prevention of disease, ……….; (2) transportation primarily for and essential to medical care; …….

8. Definition of Medical Care An expenditure that is merely beneficial to the general health of an individual is not an expenditure for medical care [Reg. 1.213-1(e)(1)(ii)].

9. Medical Care vs. General Health One of the most often-litigated questions in the area of medical expenses is whether an expenditure benefits: • a particular ailment of the taxpayer, or • is merely beneficial to his or her general health, or, worse yet, • is simply a personal expense unrelated to health. Expenditures in the first category are deductible; those in the latter two are not.

10. Special Education The cost of attending a special school for mentally or physically handicapped persons is a deductible medical expense if the principal reason for attending the school is to alleviate the person's handicap. For instance, if a handicapped person or a child with learning disabilities attends a school designed to compensate for or overcome the handicap or disability, the cost is deductible. l. Education Expenses IRC §213-1(e)(1)(v)

11. Special Education Examples of such institutions include schools which specialize in teaching Braille or lip reading. The deductible costs of attending such a school include meals, lodging, and the expenses for ordinary education furnished by the school which is incidental to the special services performed. l. Education Expenses IRC §213-1(e)(1)(v)

12. Special Education – Caution!!! The cost of sending a handicapped individual to a school which does not specializein treating the handicap and does not offer special instruction or therapy is not a deductible medical expense. For example, the cost of sending a dyslexic child to a small school that does not specialize in dyslexia or provide medical treatment for dyslexia is not a deductible medical expense.

13. Regulatory Authority • Cases • Greisdorf v. Commissioner • Lenn v. Commissioner • Private Letter Rulings • Unnamed petitioners • 8401024 • 200521003 • 200729019 • IRS Publications • Publications 502: Medical and Dental Expenses • Instructions for Form 1040 Schedule A

14. Regulatory Authority Court Cases

15. Greisdorf, Lawrence D., et ux. v. CommissionerUnited States Tax CourtDocket No. 4699-69SCDecided: August 31, 1970Cite(s): 54 T.C. 1684 Lawrence D. Greisdorf and Marianne C. A. Greisdorf,Petitionersv.Commissioner of Internal Revenue,Respondent

16. Fact Pattern: The petitioner-wife's daughter, a girl of average to above-average intelligence, suffered from an emotional disturbance which caused her to withdraw from reality and to be incapable of functioning normally at school. Upon the recommendation of a psychiatrist, the petitioners enrolled her in a private school which specialized in treating children with problems of this nature and in remedying their learning disabilities.

17. Ruling:Held, the school was a “special school” within the meaning of sec. 1.213-1(e)(1)(v)(a), Income Tax Regs., and the tuition paid by the petitioners during the year in issue was expended for medical care within the meaning of sec. 213(e)(1) of the 1954 Code.Held, further, miscellaneous expenses paid to the school were not shown by the petitioners to be properly deductible.

18. Lenn, Stephen A., et ux. v. Commissioner United States Tax Court Docket Tax Ct. Dkt. No. 3981-96 Decided: February 26, 1998 STEPHEN A. LENN AND KSENIA LENN,Petitioners v.Commissioner of Internal Revenue,Respondent

19. Fact Pattern: • In 1991, petitioners were married and filed a joint Federal income tax return. In 1992, petitioners divorced, and Stephen A. Lenn (petitioner) filed a separate return and elected the “Head of household” filing status. • Petitioner has a son, Daniel Lenn, from a previous marriage. • In 1982, when Daniel was in the first grade, he was diagnosed with a learning disability. Daniel is disabled within the meaning of the Individuals with Disabilities Education Act

20. Fact Pattern: • A doctor treating Daniel during a hospitalization period recommendedthat he enroll in a summer program at a school for children with learning disabilities. • Daniel attended Eagle Hill, a residential treatment school, for the majority of his high school education beginning in the summer of 1991 and graduating in 1995.

21. Opinion: Section 213 permits a deduction for expenses paid for medical care during the taxable year, not compensated for by insurance or otherwise. Enrollment at Eagle Hill was determined to meet the requirement that the program was designed to “treat, mitigate or alleviate the medical condition”.

22. A side note: • The taxpayer in this case sued the school district. He then deducted the legal expenses as a medical deduction. • Under initial audit the expenses were disallowed. • He pursued the issue in court and eventually won his case. Ruling - The court held that where legal expenses are necessary to “legitimate a method of medical treatment”, they are proximately related to the medical treatment and are deductible as medical care under section 213.

23. Private Letter Rulings

24. Internal Revenue ServiceDepartment of the TreasuryWashington, DC 20224 Number: 200729019 Release Date: 7/20/2007 FACTS Child A has been diagnosed with several developmental disorders, including Condition 1, an endocrine disorder that is accompanied by delayed motor, cognitive, and social development skills, as well as Condition 2, Condition 3, Condition 4 and Condition 5. Child A has received numerous comprehensive developmental, speech and language, educational, and neuropsychological evaluations from early childhood through age 17 years, 8 months. Her most recent neuropsychological report stated in part that she will need to have a support program for Condition 2 and counseling for Condition 5 if she is to attend college.

25. Law and Analysis • Section 213(a) provides that expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, the taxpayer's spouse, and dependents (as defined in §152) are deductible to the extent such expenses exceed 7.5 percent of adjusted gross income. • Section 213(d)(1)(A) defines “medical care” to include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

26. Ruling • The above authorities support the conclusion that the program offered by School for Child A is designed primarily to enable Child A to compensate for and overcome her diagnosed medical conditions. Therefore, we conclude that School is a special school within the meaning of section 1.213-1(e)(1)(v)(a) of the Income Tax Regulations. Consequently the tuition paid to School for your dependent Child A is deductible as a medical cost under § 213 of the Code.

27. Ruling • Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. • This ruling is directed only to the taxpayers requesting it.Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. • A copy of this letter must be attached to any income tax return to which it is relevant.

28. Internal Revenue ServiceDepartment of the TreasuryWashington, DC 20224 Number: 200521003 Release Date: 5/27/2005 Dear [redacted data]: You requested a ruling on the deductibility of tuition for your children as a medical care expense under section 213(a) of the Internal Revenue Code. The rulings in this letter are based on representations made in your letters of July 20 and October 22, 2004. RULINGS: • Child A's tuition at School X is a medical care expense deductible under section 213(a) for the years Child A began and continues to be diagnosed as medically handicapped, beginning in Year 1. • Child B's tuition at School X is a medical care expense deductible under section 213(a) for the years Child A began and continues to be diagnosed as medically handicapped, beginning in Year 2.

29. FACTS: • Child A and Child B are your dependents, under section 152(a). • Both children have been diagnosed as having disabilities caused by medical conditions including dyslexia that handicap their ability to learn. • School X provides each handicapped child with a program of special education designed to enable the child to deal with the medical handicaps and move on to study at a regular school.

30. Regulatory Authority • IRS Publications • Publications 502: Medical and Dental Expenses (Pg 13) Special Education You can include in medical expenses fees you pay on a doctor’s recommendation for a child’s tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders.

31. Regulatory Authority • IRS Publications • Publications 502: Medical and Dental Expenses (Pg 13) Special Education (continued) You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child overcome learning disabilities. A doctor must recommend the child attend the school. Overcoming the learning disability must be the principal reason for attending the school, and any ordinary education received must be incidental to the special education provided.

32. Regulatory Authority • IRS Publications • Publications 502: Medical and Dental Expenses (Pg 13) Special Education (continued) You cannot include in medical expenses the cost of sending a problem child to a school where the course of study and the disciplinary methods have a beneficial effect on the child’s attitude if the availability of medical care in the school is not a principal reason for sending the student there.

33. Requirements • Diagnosis • Doctor recommendation • Training and qualifications of the teachers • Program of study must be for the • Diagnosis, • Cure, • Mitigation, • Treatment, or • Prevention of disease

34. Requirements • Diagnosis • Doctor recommendation • Training and qualifications of the teachers • Program of study must be for the • Diagnosis, • Cure, • Mitigation, • Treatment, or • Prevention of disease

35. Requirements • Diagnosis • Doctor recommendation • Training and qualifications of the teachers • Program of study must be for the • Diagnosis, • Cure, • Mitigation, • Treatment, or • Prevention of disease

36. Establishment of Consistent Facts • Medical expenses are paid by you, • Your child qualifies under §152 as your dependent, and • Expenses are paid during the calendar year of your tax filing.

37. Medical Expenses only medical expenses exceeding 7.5% of your Adjusted Gross Income are deductible… While there is no annual dollar cap,

38. Example Steve and Maureen have incurred medical expenses totaling $4,000 for 200X. Their Adjusted Gross Income on their form 1040 is $165,000. Their threshold for deducting medical expenses is $12,375. AGI $165,000 IRS Factor 7.5% (10% for AMT) Threshold $12,375

39. Medical Expenses – For Lab School Families You Have Meet the 7.5% AGI Threshold,

40. Medical Expenses Now Capture All Your Other Medical Deductions!!!

41. Medical Expenses Under §213, a taxpayer is allowed to deduct only those medical expenses incurred by and/or for the • taxpayer, • the taxpayer's spouse, or a • the taxpayer’s dependent

42. Common Examples Costs of: • Doctor visits • Dental care • Eye Care • Health Insurance Payments • Co-payments

43. Common Examples Costs of: • Prescription Drugs

44. Common Examples Costs of: • Prescription Drugs Please note: Payments made for “over-the-counter” medications available without a doctor's prescription are not deductible as payments for medical care, even when recommended by a doctor.

45. Common Examples Costs of: • Prescription Drugs

46. Common Examples Costs of: • Prescription Drugs • Medical Supplies and Equipment

47. Common Examples Costs of: • Prescription Drugs • Medical Supplies and Equipment • Eye Glasses and Contacts

48. Common Examples Costs of: • Prescription Drugs • Medical Supplies and Equipment • Eye Glasses and Contacts • Travel to and from appointments • 19 cents per mile January – June 2011 • 23.5 cents per mile July – December 2011 • Therapy

49. Common Examples • Laboratory and other diagnostic services qualify as medical care expenses.

50. Common Examples • What about computers ????