Hot tubs and §213

1. Hot tubs and §213

2. Sequence of research work • Topical service to get background • IRC • Reg • Cases and rulings to determine what primary purpose and directly related mean

3. Law Write-up • Have a logical order, such as IRC, regs, cases/rulings • If using more than one IRC section, keep related code and regulation summaries together in the sequence

4. How much to include in court case or ruling summary • Enough so we know what ruling was about and why the court or IRS ruled the way it did (the rationale for the holding). • We need the facts to see how similar they are to our facts • We need the rationale to be able to know what is important and how we apply rulings to our facts

5. Example for critique Rev. Rul. 83-33, 1983-1 C.B. 70 – taxpayer’s cost of constructing a special swimming pool to treat severe osteoarthritis, to the extent the expenditure exceeds any resulting increase in the value of taxpayer’s related property, was deductible as a medical expense under §213. Costs to operate and maintain the pool are deductible in the tax year paid under §213.

6. Example for critique - 2 Haines v. Comm’r., 71 T.C. 644 (1979) – a medical expense deduction was denied for the cost of a swimming pool that the taxpyaer built at his home. The court held that the pool was not primarily related to the taxpayer’s medical care. Having a pool at home was for the mere convenience of the taxpayer, rather than a medical necessity, due to the following factors:

7. Example 2 continued • The need for special therapy for the taxpayer’s leg continued for only a limited period of time, • The pool was not enclosed so as to be usable throughout the year, and • The pool had no special equipment to help with the taxpayer’s physical therapy needs.

8. Example for critique - 3 • A portion of a medical deduction was disallowed in a case where the expenses incurred to construct the pool were excessive. Ferris v. Comm., 421 AFTR 2d 78-5674, 08/15/1978.

9. Example for critique – 4 • Seymour v. Commissioner, 111 T.C. 1111 (1950) – Not every expenditure prescribed by a physician or for the physical comfort of the individual qualifies as a medical expense.

10. Example for critique - 5 • Cherry, T.C. Memo 1983-470 – Expenditures for operating and maintaining a swimming pool were deductible medical expense, as such expenses were paid for the “primary purpose” of and were “directly related” to medical care. Factors considered in establishing medical necessity were the following:

11. Example continued • Use of the pool was related to taxpayer’s medical condition. Swimming in the pool mitigated his emphysema and bronchitis. • Taxpayer investigated alternative and less expensive forms of exercise and the availability of pools in the community prior to deciding to invest in his own pool. This careful approach showed that the taxpayer purchased and maintained the pool as a medical requirement and not for mere convenience. • Taxpayer used the pool consistently, at least two times a day. His medical condition worsened in the absence of the regular pool exercises. The pool was enclosed to allow exercise all year long. • While there was not special design for the pool, non was needed for the taxpayer’s medical problem. • Pool use for entertainment was occasional. Recreational use was incidental to its primary medical purpose.

12. Amount of deduction • Is a formal appraisal needed? • Who should get the information?

13. Additional reminders • Use proper citations • Cite where authority can be found • Cases need to indicate court and year • Should you say “IRS will disallow …” or “the IRS will question …” • Conclusion should be the brief answer. Rationale for it belongs in the Analysis section.

14. Additional reminders - 2 • File memo is: • Date • To: Sam’s Tax File • From: Researcher’s name • Re: general topic • Include at end “Next steps” or “Follow-up Actions”

15. Additional reminders - 3 • “Relevant Facts” or “Facts”? • “Issue(s)” or “Specific Issue”?