Sober Living Tax Opinion

A New Life House father who works as an Enrolled Agent submitted this tax opinion to us. While New Life House takes no stance on the issue, we wanted to make his findings available to families.

This is the personal and professional opinion of a private party and does not reflect or imply any opinion on the part of New Life House.

June 8, 2016

TAX OPINION

This is my tax opinion on whether the amount paid to a Sober Living Facility is a qualified IRC Section 213 medical expense deductible on Schedule A.

To qualify as section 213 medical care, a service rendered must be in furtherance of one of the purposes set out in section 213(e)(1)(A). Congress intended that the literal definition of section 213 medical care be read broadly so long as the treatment or service was obtained primarily for the prevention or alleviation of a specific defect or illness. The IRS has thus properly held that some relatively uncommon or unusual services constitute section 213 medical care, the expenses for which are deductible. The IRS has also allowed the deduction of expenses for acupuncture, alcoholism treatment1 and drug addiction clinics.2 Also see the attached final regulation.3 Please note that all final regulations have the force of law, whereas Revenue Rulings, Revenue Procedures, etc, are only guidelines of how the IRS will rule.

I am an Enrolled Agent governed under Circular 230. Based on my attached research, I feel that, upon examination, the amount paid to a Sober Living Facility by a taxpayer and/or dependent will stand up as a qualified IRC Section 213 medical expense deductible on Schedule A. In some cases, this may apply to certain non-dependents: In determining dependency status for purposes of the medical expense deduction, Code Section 213(a) refers to “a dependent (as defined in [Code] Section 152).” Thus, a taxpayer must satisfy the relationship and support test under Code Section 152(a) but is not required to qualify for the dependency exemption under Code Section 151. [3] Thus, the taxpayer may deduct medical expenses for a person who otherwise qualifies as a dependent even though the dependent has gross income equal to, or in excess of, the exemption amount allowable under Code Section 151(d).

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Terry A. Gottlieb, EA

1 Rev. Rul. 73-325, 1973-2 C.B. 75; Rev. Rul. 63-273, 1963-2 C.B. 112.

2 Rev. Rul. 72-226, 1972-1 C.B. 96.
3 Final Regulation, §1.213-1.

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Revenue Ruling 63-273, Internal Revenue Service, (Jan. 1, 1963)

SECTION 213.—MEDICAL, DENTAL, ETC., EXPENSES

26 CFR 1.213-1: Medical, dental, etc., expenses.

Where an individual joined an 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, transportation expenses paid in attending meetings of such Club are deductible medical expenses within the meaning of section 213 of the Internal Revenue Code of 1954.

Advice has been requested whether transportation expenses paid in the circumstances set forth below are deductible as medical expenses under section 213 of the Internal Revenue Code of 1954.

The taxpayer is afflicted with a disease involving the excessive use of alcoholic liquors. Pursuant to competent medical advice that membership was necessary for the treatment of the disease, he joined an Alcoholics Anonymous Club in his community. During the course of the taxable year, he paid transportation costs in attending meetings of the Club.

Section 213(a) of the Code allows as a deduction expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent, subject to certain limitations.

Under section 213(e) of the Code, the term “medical care” means 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 (including amounts paid for accident or health insurance), or for transportation primarily for and essential to medical care as defined therein.

Based on the facts presented in the instant case, it is concluded that the taxpayer’s costs of transportation to meetings of the Alcoholics Anonymous Club were expenses “primarily for and essential to medical care” within the meaning of section 213(e) of the Code.

Accordingly, it is held that the individual in the instant case, who joined an 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, subject to the limitations provided in section 213 of the Code.

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Revenue Ruling 73-325,, Internal Revenue Service, (Jan. 1, 1973)

Section 213.–Medical, Dental, Etc., Expenses

26 CFR 1.213-1: Medical, dental, etc., expenses.

Amounts paid by an inpatient 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 under section 213 of the Code.

A taxpayer entered a therapeutic center for alcoholism where he remained as an inpatient for several months. The center is maintained for alcoholics by a private, nonprofit organization and receives support from outside legal, medical and other professional sources. Inpatients are required to pay for their care, which includes room, board, and treatment at the center.

Held, under the facts of the instant case, amounts paid by the taxpayer to the therapeutic center for alcoholism, including the cost of the taxpayer’s meals and lodging at the center which are furnished as a necessary incident to his treatment, are expenses for medical care as defined in section 213 of the Internal Revenue Code of 1954, and are deductible as medical expenses subject to the limitations provided therein.

See Rev. Rul. 63-273, 1963-2 C.B. 112, which holds that the cost of transportation to meetings of the Alcoholics Anonymous Club are expenses “primarily for and essential to medical care” in the case of an alcoholic who attended such meetings. See also Rev. Rul. 72-226, 1972-1 C.B. 96, which holds that amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts, including the cost of the dependent’s meals and lodging, are deductible medical expenses under section 213 of the Code.

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Revenue Ruling 72-226,, Internal Revenue Service, (Jan. 1, 1972)

Section 213.–Medical, Dental, Etc., Expenses

26 CFR 1.213-1: Medical, dental, etc., expenses.

Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts, including the cost of the dependent’s meals and lodging, are deductible medical expenses under section 213 of the Code.

Advice has been requested whether amounts paid by a taxpayer to maintain his dependent in a therapeutic center for drug abusers may be deducted as medical expenses under section 213 of the Internal Revenue Code of 1954 under the circumstances described below.

The taxpayer’s dependent became addicted to narcotic drugs and subsequently entered a therapeutic center where he remained as an inpatient for several months. The center is maintained for drug addicts by a private, nonprofit organization and the staff includes psychiatrists and psychologists, as well as other workers. The cost of room, board, and treatment at the center is $15 per day per person, $5 of which is furnished by the Federal and State governments, and the remaining $10 of which is paid by the taxpayer.

Section 213(a) of the Code allows a deduction, subject to certain limitations, for expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or his dependent.

Section 1.213-1(e)(1)(v)(a) of the Income Tax Regulations provides, in pertinent part, that where an individual is in an institution because his condition is such that the availability of medical care in such institution is a principal reason for his presence there, and meals and lodging are furnished as a necessary incident to such care, the entire cost of medical care and meals and lodging at the institution, which are furnished while the individual requires continual medical care, shall constitute an expense for medical care.

For example, medical care includes the entire cost of institutional care for a person who is mentally ill and unsafe when left alone. The Supreme Court of the United States held, in the case of C. O. Linder v. United States, 268 U.S. 5 (1925), that persons addicted to narcotics “are diseased and proper subjects for [medical] treatment.”

Accordingly, it is held that amounts actually paid by the taxpayer to maintain his dependent in a therapeutic center for drug addicts including the cost of the dependent’s meals and lodging at the center which were furnished as a necessary incident to his treatment, are expenses for medical care under section 213 of the Code.

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FINAL-REG, §1.213-1. Medical, dental, etc., expenses. (Applicable Sections)

(a) Allowance of deduction

(1) Section 213 permits a deduction of payments for certain medical

expenses (including expenses for medicine and drugs). Except as provided in

paragraph (d) of this section (relating to special rule for decedents), a deduction is allowable only to individuals and only with respect to medical expenses actually paid during the taxable year, regardless of when the incident or event which occasioned the expenses occurred and regardless of the method of accounting employed by the taxpayer in making his income tax return. Thus, if the medical expenses are incurred but not paid during the taxable year, no deduction for such expenses shall be allowed for such year.

(e) Definitions

(1) General

(i) The term “medical care” includes the diagnosis, cure, mitigation, treatment, or prevention of disease. Expenses paid for “medical care” shall include those paid for the purpose of affecting any structure or function of the body or for transportation primarily for and essential to medical care. See subparagraph (4) of this paragraph for provisions relating to medical insurance.

(v) The cost of in-patient hospital care (including the cost of meals and lodging therein) is an expenditure for medical care. The extent to which expenses for care in an institution other than a hospital shall constitute medical care is primarily a question of fact which depends upon the condition of the individual and the nature of the services he receives (rather than the nature of the institution). A private establishment which is regularly engaged in providing the types of care or services outlined in this subdivision shall be considered an institution for purposes of the rules provided herein. In general, the following rules will be applied:

(a) Where an individual is in an institution because his condition is such that the availability of medical care (as defined in subdivisions (i) and (ii) of this subparagraph) in such institution is a principal reason for his presence there, and meals and lodging are furnished as a necessary incident to such care, the entire cost of medical care and meals and lodging at the institution, which are furnished while the individual requires continual medical care, shall constitute an expense

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for medical care. For example, medical care includes the entire cost of institutional care for a person who is mentally ill and unsafe when left alone. While ordinary education is not medical care, the 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. Similarly, the cost of care and supervision or of treatment and training, of a mentally retarded or physically handicapped individual at an institution is within the meaning of the term “medical care.”

(c) It is immaterial for purposes of this subdivision whether the medical care is furnished in a Federal or State institution or in a private institution.

Institution – from dictionary.com

  1. an organization, establishment, foundation, society, or the like, devoted to the promotion of a particular cause or program, especially one of a public, educational, or charitable character: This college is the best institution of its kind.
  2. the building devoted to such work.
  3. a public or private place for the care or confinement of inmates, especially mental patients or other persons with physical or mental disabilities.
  4. Sociology. a well-established and structured pattern of behavior or of relationships that is accepted as a fundamental part of a culture, as marriage: the institution of the family.
  5. any established law, custom, etc.
  6. any familiar, long-established person, thing, or practice; fixture.
  7. the act of instituting or setting up; establishment: the institution of laws.

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Enrolled Agents: The Tax Professionals

What is an Enrolled Agent? An Enrolled Agent (EA) is an individual who has demonstrated technical competence in the field of taxation. Enrolled Agents, or EAs, can represent taxpayers before all administrative levels of the Internal Revenue Service.

What does the term “Enrolled Agent” mean? “Enrolled” means EAs are licensed by the federal government. “Agent” means EAs are authorized to appear in place of the taxpayer at the Internal Revenue Service. Only EAs, attorneys and CP As may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the Treasury Department.

How can an Enrolled Agent help me? EAs advise, represent and prepare tax returns for individuals, partnerships, corporations, estates, trusts and any entities with tax-reporting requirements. EAs prepare millions of tax returns each year. EAs’ expertise in the continually changing field of tax law enables them to effectively represent taxpayers audited by the IRS.

What are the differences between Enrolled Agents and other tax professionals? Only Enrolled Agents are required to demonstrate to the Internal Revenue Service their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in taxation. EAs are the only taxpayer representatives who receive their right to practice from the United States government. (CPAs and attorneys are licensed by the states.)

How does one become an Enrolled Agent? The EA designation is earned in one of two ways: (1) an individual must pass a difficult two-day examination administered by the IRS which covers taxation of individuals, corporations, partnerships, estates and trusts, procedures and ethics. Next, successful candidates are subjected to a rigorous background check conducted by the Internal Revenue Service; or (2) an individual may become an EA based on employment at the Internal Revenue Service for a minimum of five years in a job where he/she regularly applied and interpreted the provisions of the Internal Revenue Code and regulations.

Are Enrolled Agents required to take continuing professional education? In addition to the stringent testing and application process, EAs are required to complete 72 hours of continuing professional education, reported every three years, to maintain their status. Because of the difficulty in becoming an Enrolled Agent and keeping up the required credentials, there are fewer than 35,000 active EAs in the United States.

Are Enrolled Agents bound by any ethical standards? EAs are required to abide by the provisions of U.S. Treasury Department Circular 230. EAs found to be in violation of the provisions contained in Circular 230 may be suspended or disbarred.

Why should I choose an Enrolled Agent who is a member of the National Association of Enrolled Agents (NAEA)? NAEA is the organization of and for Enrolled Agents. The principal concern of the Association and its members is honest, intelligent and ethical representation of the financial position of taxpayers before governmental agencies. Members of NAEA are required to complete a minimum of 30 hours of continuing professional education each year in the interpretation, application and administration of federal and state tax laws in order to maintain membership in the organization. This requirement surpasses the IRS’ required minimum of 16 hours per year.

What is client privilege with an Enrolled Agent? The IRS Restructuring and Reform Act of 1998 allows federally authorized practitioners (those bound by the previously mentioned Circular 230) a limited client privilege. This privilege allows confidentiality between the taxpayer and the Enrolled Agent under certain conditions. The privilege applies to situations where the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. The privilege does not apply to state tax matters, although a number of states have an accountant-client privilege.

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