From The Tax Adviser: Deducting Retirement Community Fees.
Saved in:
| Authors: | Laffie, Lesli S. |
|---|---|
| Source: | Journal of Accountancy. Dec2004, Vol. 198 Issue 6, p96-96. 1p. |
| Subject Terms: | *Income tax deductions for medical expenses, *User charges, Retirement communities, Tax court decisions, Air Force Village West (Riverside, Calif.) |
| Geographic Terms: | Riverside (Calif.), California, United States |
| People: | Baker, Delbert L. |
| Abstract: | This article discusses the Tax Court's decision in the case of Delbert L. Baker, which provided additional flexibility in determining the portion of fees deductible as IRC section 213 medical expenses. Baker and his wife had an agreement with Air Force Village West Inc. (AFVW), a California retirement community, entitling them to lifetime residency. AFVW provided four levels of living accommodations and service, ranging from independent living to skilled nursing care. Baker was a member of an ad hoc committee of AFVW residents using certified financial data provided by the community's vice president of finance; he used the information to determine that approximately 40 percent of the couple's monthly fees was attributable to medical care. Thus, the Bakers deducted that percentage of their costs on their 1997 and 1998 returns. On audit, the service disallowed a portion of the Bakers' medical deductions. Using a percentage allocation method, the U.S. Internal Revenue Service (IRS) permitted only 19.01 percent of the monthly fees as a medical deduction. At trial, the IRS claimed the allowable medical deduction, instead, had to be based on actuarial calculations, taking into consideration health care utilization and longevity. The Tax Court disagreed. It concluded the certified financial data the Bakers had produced was sufficient to shift the burden of proof to the service under IRC section 7491. The court cited the IRS history of allowing use of the percentage method. While the Tax Court approved use of the percentage allocation method, it modified the approach used by both parties. Instead of allowing a percentage of the fees each resident paid, it held that the percentage had to be based on the number of community residents and a weighted average of their monthly service fees. Otherwise, occupants of larger units would receive a higher deduction based solely on the higher fees charged for such units, without regard to occupancy. |
| Database: | Entrepreneurial Studies Source |
|
Full text is not displayed to guests.
Login for full access.
|
|
| Abstract: | This article discusses the Tax Court's decision in the case of Delbert L. Baker, which provided additional flexibility in determining the portion of fees deductible as IRC section 213 medical expenses. Baker and his wife had an agreement with Air Force Village West Inc. (AFVW), a California retirement community, entitling them to lifetime residency. AFVW provided four levels of living accommodations and service, ranging from independent living to skilled nursing care. Baker was a member of an ad hoc committee of AFVW residents using certified financial data provided by the community's vice president of finance; he used the information to determine that approximately 40 percent of the couple's monthly fees was attributable to medical care. Thus, the Bakers deducted that percentage of their costs on their 1997 and 1998 returns. On audit, the service disallowed a portion of the Bakers' medical deductions. Using a percentage allocation method, the U.S. Internal Revenue Service (IRS) permitted only 19.01 percent of the monthly fees as a medical deduction. At trial, the IRS claimed the allowable medical deduction, instead, had to be based on actuarial calculations, taking into consideration health care utilization and longevity. The Tax Court disagreed. It concluded the certified financial data the Bakers had produced was sufficient to shift the burden of proof to the service under IRC section 7491. The court cited the IRS history of allowing use of the percentage method. While the Tax Court approved use of the percentage allocation method, it modified the approach used by both parties. Instead of allowing a percentage of the fees each resident paid, it held that the percentage had to be based on the number of community residents and a weighted average of their monthly service fees. Otherwise, occupants of larger units would receive a higher deduction based solely on the higher fees charged for such units, without regard to occupancy. |
|---|---|
| ISSN: | 00218448 |
