Form vs. Substance – Deductible Expenses

Thanks for sharing!

Form vs substance

When you pay tax-deductible expenses for someone who’s not your dependent, who gets the deduction?

In T.C. Memo. 2010-286 (Lang), the question arose when a mother paid medical bills and real estate tax for her daughter, and the daughter deducted those expenses on her personal income tax return.

The IRS said mom wasn’t responsible for the expenses, and therefore couldn’t deduct them, and that the daughter, who was responsible for them, hadn’t paid them and therefore couldn’t deduct them.

The daughter argued that she was entitled to the deductions, saying the transaction was no different than if her mother had given her the money as a gift and she had paid the expenses herself.

At issue: $24,559 of medical expenses and $5,508 of real estate taxes.

The court, noting there was no issue of a double deduction since the mother had not claimed the expenses on her return, agreed with the daughter and allowed the deductions.

***

Other posts you might enjoy

Decisions — Canine silence Image source: wpclipart.com   In the Arthur Conan Doyle short story, Silver Blaze, fictional detective Sherlock Holmes solved the case by inferring intent from silence—the significance of a dog who didn't bark. In a tax court case this week (149 T.C. No. 2, Gregory), internal revenue ...
Decisions — Eat, drink, deduct Image source: Theodoor Rombouts , via Wikimedia Commons  Even if you don't eat like a hockey player, you may be interested in the tax court's take on the rules limiting deductions for meals. Under current tax law, meal and entertainment expenses are not deductible unless the expenses are...
Decisions — Worth the whistle Image source: Zephyris, via Wikimedia Commons   A taxpayer thinks his information is worth the whistle. The IRS says the information is not worth the dust which the rude wind blows in the taxpayer's face…or something along those Shakespearean lines. Who's right? In general, tax law pr...
Decisions — Foreseeing anticipation Image source: https://wpclipart.com/   According to Dr. Seuss, sometimes the questions are complicated, and the answers are simple. The good doc probably wasn't referring to tax law, but that doesn't stop tax practitioners from anticipating a simple answer before researching the question...
Posted in Taxing Lessons From Court Decisions Tagged with: ,