TAX COURT OPINION

Case: Estate of Lillian Baral, Deceased, David H. Baral, Administrator
Docket Number: 3618-10
Judge: Dawson
Opinion Type: reported
Filed: 07/05/2011
Pages: 12

137 T.C. No. 1 UNITED STATES TAX COURT ESTATE OF LILLIAN BARAL, DECEASED, DAVID H. BARAL, ADMINISTRATOR, COMMISSIONER OF INTERNAL REVENUE, Respondent Petitioner v. Docket No. 3618-10. Filed July 5, 2011. D' s physician diagnosed her as suf fering from dementia and determined that, because of her diminished capacity, she required assistance and supervision 24 hours a day for medical reasons, as well as for her safety. D's brother, her attorney-in-fact, hired caregivers to provide the necessary assistance. During 2007, and the New York University Hospital Center for medical care provided to D, $5,566 to D's caregivers for supplies, and $49,580 to D's caregivers for their services. issue, D paid $760 to D's physicians the ye r at Held: 3 paid $760 in 2007 to her physicians and the New York University Hospital Center for the diagnosis, care, mitigation, of disease, as defined is sec. 213(d) (1) (A), reimbursed b/ insurance or otherwise. treatment, or prevention ind that amount was paid for medical care I.R.C., and was not $$RVED JUL - 5 2011 - 2 - Held, further, P,has not established that the $5, 566 paid to D' s caregivers for supplies was paid for medical care as defined in sec. 213(d) (1), I.R.C. Held, further, D was certified by her physician, a licensed'health care pi-actitioner, as requiring substantial supervision to protect her from threats to her health and safety because of her severe cognitive impairment,p and theref re she was a chronically ill individual as defined ri sec. 7702B(c) (2)-(A), I.R.C. Held, further,ethe services provided to D by her careg'ivers were necessary,máintenance and personal care services that she reqùïred because ofs her diminished capacity;t were provide"d pursuant prescribed by a licens d health care practitioner; and therefore are qualifie long-term care services ás defined~in see. 77/02B( ), to a plan of care I.R.C. Held flirther, t $49; 580 paid t-oaD'.s caregivers a for iheir quálified lcng-term care services was an amount paid for 213 (d) (1) (C) , « I . medical care as R.C. defined in sec. David H . Baral , for pe itioner. ScótteA. Hòvey, for respondent. OPINION DAWSON, Judqé:a Respor ent ,determined that decedent was liable for a $17;681 deficiency in Federar income tax and additions to tax of $3 107 47 under section 6651(a) (1) , $1, 173 . 93 under section 6651 (a) (2) , and $608 . 965 under sec tion - 3 - 6654(|a) for 2007.1 The issue remaining for decision is whether decedent may deduct as medical care expenses under section 213(a) the following amounts paid during 2007:2 (1) $760 paid to decedent's physicians and the New York University Hospital Center; (2) $5,566 paid to decedent's caregivers for supplies; and (3) $49,580 paid to decedent's caregivers for their services. The payments for the caregivers' services are deductible if the servibes constitate qualified long-term care services as defined in section 7702B(c). IUnless otherwise indicated, section references are to the Internal Revenue Code in effect for 2007, and Rule references are to the Tax Court Rules of Practice and Procedure. 2Respondent conceded all additions to tax. In the petition, income tax return or pay Federal petitioner asserted that decedent was not required to file a Federal income tax for 2007 because she suffered from severe dementia and that the burden of proof was on respondent. Respondent filed a motion for summary judgment. Petit oner objected to respondent's motion. granted respondent partial summary judgment that mental an income tax return and pay the tax and (2) petitioner has the burden of proof. that decedent was entitled to deductions for amounts paid for medical care and decedent's entitlement deduction was tried by consent of incapacity did not excuse her from her obligation to file In petitioner's objection, petitioner asserted The Court (1) decedent's to a medical expense the parties. Background Some of the facts have been ,stipulated and are so found. The stipulation of facts and supplemental stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.3 Decedent; I illian Baral, was a resident of Queens, New York, when :she died on August 28, 2008, at the age of 92. Her brother, David H . Baral, ris thes admi listrator of her estate . He resided in the District of Columbia when the petition was filed in this case . Mr . Baral handled al L of decedent ' s personal and f inanc ial af f airs under a power of attorney during the last years of her life. He wrote checks fron her bank account to pay her bills. Martin Finkelstein, M D. , was decedent' s primary care physician from 2002 until 1 er death. He diagnosed her as suffering from dementia and prescribed Aricept and Namenda, drugs usually prescribed for patients diagnosed with Alzheimer's disease or dementia. Decedent' s hospital records indicate that the dementia had been diagr osed as early as 2004. In April 2004 decedent*was hospitalized. Decedent' s medical redords show that when she was hospitalized she hád not been compliant with taking 3At the trial the part es filed a stipulation of facts but informed the Court that deäedent' s physician had not responded to their requests .for decedentä's records. left the record open to give the parties ac,lditional The parties filed a suppleniental stipulation of records attached as exhibitis . time sto obtain the records. facts with thes The Court - 5 - her prescription medicines. Following another hospitalization in November 2004 she was evaluated so as to determine whether she was taking her medications properly and whether it was safe fór her to live alone and so as to formulate a long-term plan of care. A medical sammary in Dr. Finkelstein's records dated May 1, 2007, shows that decedent had been evaluated on December 26, 2006.4 The medical summary indicates that as of that December 26, 2006, (1) deaedent's ability to communicate orally was impaired, (2) she was confused, (3) she required assistance with activities of dally living, (4) she required supervision due to her memory deficlt, (5) she was at risk of falling and, therefore, could not be left alone, and (6) she required baseline homecare services. Dr. Finklestein determined that, because of decedent's didinished capac:.ty, she required assistance and supervision 24 hours a day for nedical reasons and for her safety. Mr. Baral engaged a company recommended by Dr. Finkelstein to provide the required assistance to decedent. Margurita Pzevorski was one of the individuals sent by the company to provide decedent with the necessary care. 4Mr. Baral did not obtain Dr. Finkelstein's records for years other than 2007. Consequently, does not condition made before Dec. 26, 2006. include the results of evaluations of decedent's the record in this case To reduce the cost- of bare, Mr. Baral terminated the company after a couple months (befo e the end of 2006) and hired Ms. Pzevorski directly to provide the necessary 24-hour-a-day care. Ms. Pzevorski assisted decedent with bathing, dressing, trips to the doctor, taking her medications, and transferring to a wheelchair. Ms. Pzevorski t.ook 5 weeks off during. 2007. Another caregiver, Walters Emily Jakubowski, provided the 24-hour-a-day care- for decedent during those weeks . Ms. Pzevorski and Ms. Jakubowski also paid for some of decedent's miscellaneous expenses and submitted receipts to Mr. Baral f or reimbursement . M . Baral paid Ms . Pzevorski and Ms . Jakubowski for their servic s and reimbursed them for the supplies with separate checks drawn on decedent's bank account. During 2007 Mr. Baral paid Ms. Pzevorski and Ms. Jakubowski $40,760 and $8,820, respect ively, for their services, and he reimbursed them, $4,716 and $850, respectively, for decedent's expenses., In 2007, he alsó paid from decedent.'s account a total of $760 to Dr. Finkelstein and decedent' s other physicians and to the New York University Hoåpital Center for her medical care. Decedent was not reimbursed by insurance or otherwise for the payments to the caregivers the physicians, or the New York University Hospital Center Mr. Baral spoke on the telephone to decedent and her caregiver every day. Alth ugh decedent knew who Mr. Baral was - 7 - and could communicate with him, the conversations were limited, and it was obvious to Mr. Baral that she had "lost her memory". DecedŠnt's caregivers kept Mr. Baral informed of decedent's activïties and condition. Decedent's caregivers were unrelated to her or Mr. Bacal. Decedent received the following income in 2007: (1) $245 interest income, (2) $29,331 ordinary dividends, (3) $13,239 capital gain, (4) $21,246 Social Security income, (5) $7,232 taxable distribution from an IRA, and (6) $33,355 distribution from a pension fund. Decedent did not file a Federal income tax return for 2007 or pay Federal income tax for 2007. No~r did Mr. Baral, as decedent's attorney-in-fact,. file a return on her behalf. Consequently, respondent filed a substitute for return for decedánt pursuan: to section 6020(b) on the basis of information provided by third parties. On November 9, 2009, respondent sent petitioner a not tce of deficiency for 2007 in which he determined that decedent received $94,229 of income from third parties. Respondent further determined that decedent was entitled to a personal exempti<pn of $3,400 and a standard deduction of $6,650, resulting in an ncome tax deficiency of $17,681. The parties agree that decedent's adjusted gross income in 2007 was $94,229. Discussion Certain expenses paid uring the taxable year for the medical care,of the taxpayer or a dependent (as defined in section 152) that are not compensated for by insurance or otherwise may be allowed as a deduction to the extent that the expenses exceed 7.5 -percent of. the taxpayer's adjusted gross income . Sec . 213 (a).. Dece ent had adjusted gross, income of $94, 229 in 2007 and may be llowed a deduction of the amount paid for medical care that exceeds $7,067--7.5 percent of decedent's adjusted gross income. As relevant here, med cal care includes amounts paid for the diagnosis, cure, mitigation, treatment, ors prevention of disease, and amounts paid for qualified long-term.care services,sas defined in section 7702B(c) . Sec. 213(d) (1) (A)., (C). During 2007 Mr. Baral paid from decedent's account $760 to New York University Hospital Center and decedent' s physicians, including Dr . Finkelstein, for decedènt' s medical care . Those expenses were paid for the diagnosis, cure, mitigation, and/or treatment of decedent' s disease and, (therefore, constitute medical care expenses deductible under section 213 (a) . Mr . Baral also reimbursed Ms. Pzevorski a d Ms. Jakubowski $4,716 and $850, respectively, for decedent s expenses . .Although they gave him receipts for the expenses, yhe did not provide the receipts to the Court. He has not identified the expenses or otherwise - 9 - substantiated that they are medical care expenses. Consequently, those reimbursed expenses are not deductible under section 213(a). Mr. Baral also paid Ms. PZevorski and Ms. Jakubowski $49,580 ($40,760 + $8,823) for their services to decedent. The caregivers are not licensed healthcare providers, and the payments to them were not for-the diagnosis, cure, mitigation, treatment, or prevention of decedent's disease. However, the amounts paid to :he caregivers are deductible if their services are qualified lo g-term care services as defined in section 7702B(c). See s c. 213(d) (1) (C). "Qualified Long-term care services" means necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner. Sec. 7702B(c) (1). A "chronically ill individual" means any individual who has been certified by a licensed health care practitioner as (i) being unable to perform at least two of six specified áctivities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of at leant.90 days due to a loss of functional capacity (the ADL level o disability); (ii) having a level of di,sability similar to the ADL level of disability as determined under - 10 - regulations prescribed -by the Secretary in -consultation with the Secretary of Healthaand Human Services -(the similar level of disability) ; or (iii) requi ing substantial supervision to protect the individual fron threats to health and safety due to severe cognitive impairment (cognitive impairment) S Sec. 7702B(c) (2) . , A licensed health care practitioner means any physician, registered professional nurse, licensed social worker, or other individual who meets requi ements that may be prescribed by the Secretary. Sec. 7702B(c) (4) . Dr.. Finkelstein, a physician, is a licensed healthcare professional. The Decemben 2006 evaluation showed that decedent required assistances with ,activities of daily living but does not ,specif which activities of daily living. sIn respondent's pretr al memorandum it is asserted that "expénses incurred which are merely to"the general health of an individual are not petitioner had not substantiated the amount of decedent's medical care exÿenses foi 2007, whŠther she was reimbursed for the expenses, or the medical nature of the expenses . Citing Gardner v. Commissioner, T.C. Memo. 1983=541, and sec. 1.213-1(e) (1) (ii), respondent.noted that beneficial deductible." Further, citilng Borgmann v. Commissioner, 438 F.2d 1211 (9th Cir. 1971), affgg T.C. Memo. 1969-i29, asserted that "the salary ánd cost of housekeepers hired on the édvice of a doctor are not deductible medical expenses . " At trial respondent asserted that petitioner ) decedent's "significant body had not established Ehat (2) services were functions were impaired" during 2007 or provided to decedent' "purs ant to a plan established by a qualified health care professional". held after the supplementai stipulation* of the Court briefs but would rely on thè-pretrial memorandums. In a telephone conference facts was filed with the parties stated that they did not wish to file room and board for respondent ( - 11 - Thus,'while we are unable to conclude that Dr. Finkelstein· certified that d cedent had the ADL level of disability, he diagnosed decedeat as suffering from severe dementia; i.e., decedent was cognitively impaired. As early as 2004 her cognitive impair ent prevented her from properly taking her prescription medicine. Failure to take prescribed medication posed a risk to decedent's health. Dr. Finkelstein certified decedent as requiring substantial supervision to protect her from threats to her health and safety-due-to her severe cognitive impairment. Therefore, decedent was a chronically ill individual as defined in section 7702B(c) (2) (A). "Maintenanc or personal care services" means any care that has the primary urpose of providing needed assistance with any of the disabilities that result in the individual's qualifying as a chronically il. individual, including protection from threats to health and safety due to severe cognitive impairment; Sec. 7702B(c) (3). The December 2006 tevaluation showed that decedent required supervision.because of her memory deficit. Dr. Finkelstein determined that decedent required 24-hour-a-day supervision to protect her from threats to her safety and health created by her dementia.- Mr. Baral hired decedent's caregivers to provide the 24-hour care Dr. Finkelstein determined was necessary to protect her health and safety. The services provided to decedent by her caregivers were necessary maintenance - 12 - and personal care services she required because of her diminished capacity and they; were spro ided pursuant to a plan of care prescribed b a licensed health scare practitionei-. Therefore, RI 1.- they re qualified long-term care mervices as defined in section 7702B(c) Conclusion e hold that «the $49 580 paid ini 2007 to decedent' s caregivers for etheir- qualified long-term care services was an a amôunt ,paid -forstnedical, care as defined inasectiong213 (d) (1) (C) . Decedent also paide $760 in that year to her physicians and the New York University Hospit 1 Center for their services. She was not -reimbursed by insurance or gotherwise, for, those payments, which tot aled±$50 , 340 .s 'I'hus decedents hadradjusted, gross iincome of $94, 9 in -2007 and may be allowed a deduction of .$43,273,-the amount pasid for medicgl care that exceeds $7,067 (7.5 percent of decedent' s adjusted grosse income) . M As, previously stated, we hold tihat petitioner has not established thatethe $5 56Ë reimbursed expenses paidsto decedênt' s caïegivers are deductible as medical expenses under sect ion 213 (a) To reflect thetparties concessions and our holdings hereïn, Decision will be entered under Rule 155 .