TAX COURT OPINION

Case: Russell E. Mull & Susan W. Mull
Docket Number: 30635-14S
Judge: Colvin
Opinion Type: bench
Filed: 07/08/2016
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 DRC RUSSELL E. MULL & SUSAN W. MULL, Petitioners, v. ) ) ) ) Docket No. 30635-14S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge John O. Colvin at Washington, D.C., on May 17, 2016, containing the oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) John O. Colvin Judge Dated: Washington, D.C. July 8, 2016 SERVED Jul 08 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge John O. Colvin May 17, 2016 3 Russell and Susan Mull v. Commissioner 4 5 6 7 8 9 Docket No. 30635-14S THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY 10 OTHER CASE. 11 12 13 14 15 16 17 This opinion is rendered pursuant to Section 7459(b)'and Rule 152. All citations to sections, unless otherwise noted, are to the Internal Revenue Code for the year at issue. Citations to rules are to the Tax Court Rules of Practice and Procedure. Petitioners are self-represented. Deborah 18 Aloof represented Respondent. Mrs. Mull did not 19 20 21 22 23 24 25 attend the trial. We will enter a decision with respect to her on the same basis that it is entered for Mr. Mull, whom we will refer to as Petitioner. Respondent determined that Petitioners have an income tax deficiency in the amount of $2,676 for 2009. The issue for decision is whether Petitioners overstated the medical expense deduction that they 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 claimed for 2009. We hold that their total medical expenses are in the amount discussed below. Based on a computational adjustment to itemize deductions, the total adjustment to the Schedule A is 18,269. The additional $59 decrease to itemized deductions shown in the Notice of Deficiency results from a computational adjustment. FINDINGS OF FACT Petitioners were husband and wife in 2009 and resided in Virginia when the petition was filed A. Petitioners' Daughter's Medical Needs in 2009 Petitioners' daughter was born in 1987. 1 2 3 4 5 6 7 8 9 10 11 12 13 Petitioners also have a son born in 1983 and another 14 15 16 17 18 19 20 21 22 daughter born in 1991. Unless specified otherwise, references herein to their daughter are to the daughter whose drug rehabilitation program expenses are at issue here. During 2009, Petitioners' daughter was admitted to an inpatient drug rehabilitation program at the Gatehouse Academy, (which we'll refer to as Gatehouse) in Wickenburg, Arizona. She was a resident at the facility from January 2009 until 23 March 2010. 24 25 Petitioner and his wife accompanied their daughter to Gatehouse in January 2009 when she 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 entered the program. They both traveled to 2 Wickenburg four times in 2009 to visit her at 3 Gatehouse. Their other daughter accompanied them on 4 5 three of these trips, and their son went once. These visits lasted three days. On Fridays, the family 6 members attended therapy sessions at Gatehouse from 9 7 a.m. to 5 p.m. There was another session Saturday 8 mornings. On Saturday afternoons, they were 9 permitted to leave Gatehouse for a couple of hours 10 with their daughter, but only if accompanied 11 12 13 continuously by a more senior Gatehouse program participant. On Sundays, there was a morning program at 14 Gatehouse. These programs included therapy sessions 15 with the other patients and their family members. 16 Gatehouse strongly encouraged all family members to 17 18 19 20 21 22 23 24 25 attend these sessions. Due to the intense "24/7" nature of the Gatehouse program, at trial, Petitioner at least once referred to the patients such as his daughter as inmates. Petitioners' daughter received a certificate from Gatehouse, dated March 27, 2010, showing she had successfully completed the program. B. Petitioners' 2009 Tax Return Petitioners filed a Form 1040, U.S. Individual Income Tax Return for 2009, on November 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 1 2 3 4 19, 2010. In 2012, they submitted an amended income tax return for 2009. Attached to their amended return was a Schedule A Itemized Deductions, (the "Schedule A"), on which Petitioners reported total 5 medical expenses for 2009 in the amount of $99,025. 6 After applying the 7.5 percent floor, Petitioners 7 8 deducted $85,033 for medical expenses. C. Respondent's Examination of Petitioners' 2009 9 Return 10 After rev1ewing substantiation provided by 11 Petitioners, Respondent determined that Petitioners 12 13 14 15 16 17 18 19 20 21 22 23 had substantiated $80,815 of medical expenses. SUMMARY OPINION A. Burden of Proof Taxpayers generally bear the burden of proving that the Commissioner's determination is incorrect. Rule 142(a) Welch v. Helvering, 290 U.S. 111, 115 (1933). However, we need not consider the burden of proof in deciding this case. B. Medical and Dental Expenses Section 213(a) provides a deduction for "the expenses paid during the taxable year not compensated for by insurance or otherwise, for 24 medical care of the taxpayer...or a dependent." 25 An expense is for medical care if it is 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 paid, in part, "(A) for the diagnosis, cure, 2 mitigation, treatment, or prevention of disease, or 3 4 5 6 7 8 9 10 11 12 for the purpose of affecting any structure or function of the body [or] (B) for transportation primarily for and essential to medical care referred to in Subparagraph U4)." Sections 213(d) (1) U4)(B). A deduction of up to $50 per night per individual is allowed for "lodging, (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care_if (A) the medical care...is provided by a physician in a licensed hospital (or in a medical care facility 13 which is related to or the equivalent of a licensed 14 15 16 17 18 19 20 hospital), and (B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home." Section 213(d)(2). C. Deductible Amounts 1. Payments to Gatehouse The record includes invoices from Gatehouse for 2009 totaling $97,573,94, and checks from 21 Petitioners payable to Gatehouse in 2009 totaling 22 23 24 25 $76,961. Petitioner testified that they paid the entire amount billed, $97,573.94 in 2009. We must decide whether to allow only the amount of the checks in evidence or to accept Petitioner's testimony 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 regarding the amount of Petitioners' 2009 payments to 2 Gatehouse. 3 4 5 We decide whether a witness is credible based on objective facts, the reasonableness of the testimony, the consistency of statements made by the 6 witness, and the demeanor of the witness. See, 7 8 Quouck Ting v. United States, 140 U.S. 417, 420-421 (1891); Wood v. Commissioner, 338 F.2d 602, 605, (9th 9 Cir. 1964) affg. 41 T.C. 593 (1964); Pinder v. United 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 States, 330 F.2d 119, 124-125(5th Cir. 1964); Concord Consumer Hous. Coop. v. Commissioner, 89 T.C. 105, 124 n.21 (1987). We may discount testimony which we find to be unworthy of belief, See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986), but we may not arbitrarily disregard testimony that is competent, relevant, and uncontradicted, See Conti v. Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), affg. 99 T.C. 370 (1992) and T.C. Memo. 1992-616. The latest of the Gatehouse invoices in the record is dated October 26, 2009. The checks in the record reveal a general pattern of prompt bill payment by Petitioners. Petitioners used funds from savings and from the sale of stock to pay these 25 bills. Petitioner testified that he paid the entire 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 amount billed, $97,573.94 in 2009; that he may have paid the difference between the amount shown in the invoices and the amount of the checks directly from a bank or brokerage account rather than by a check from his checking account. He also testified that he is sure he paid the total amount to Gatehouse because Gatehouse did not waive payment of any of the charges. He also pointed out that he owes no money to Gatehouse. He 10 checked his records to see if he paid any of those 11 bills in 2010, but found no such record of such 12 13 14 15 16 17 18 19 20 21 22 payments. Petitioner appeared to be testifying truthfully. His entire conduct before the Court in this case and testimony suggests that at no time did he attempt to mislead the Court. Nothing to the contrary was developed in cross-examination. We believe Petitioner took seriously his obligation to testify under oath. Thus, we find that Petitioners paid $97,573.94 to Gatehouse in 2009. Respondent contends that the $50 per day limit on lodging expenses applies to the cost of 23 Petitioners' daughter's participation in the 24 25 Gatehouse program because a blank copy of the Gatehouse program application form offered into 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 evidence by Respondent states that it is not a 2 medical facility. We disagree with Respondent on 3 4 5 6 7 this point. It is undisputed that Petitioners' daughter's drug rehabilitation program at Gatehouse qualifies as medical care for purposes of Section 213. It was required that Petitioners' daughter be closely monitored and in continuous residence at 8 Gatehouse in order to participate in the program. 9 10 11 12 13 She was permitted to leave only for a couple of hours on Saturday afternoons, and then only if a more senior Gatehouse program participant accompanied her at all times. There was nothing remotely personal about her receiving lodging from 14 Gatehouse. 15 16 17 18 19 20 The allowable deduction in connection with treatment at an inpatient drug rehabilitation program includes the cost of meals and lodging for the person receiving treatment at the rehabilitation center. See Tres. Reg 1.213-1(e)(1)(v). In Havey v. Commissioner, 12 TC 409, at 412 (1949), we said: 21 must be considered. Consideration should be accorded In determining allowability, many factors the taxpayer, but such the motive or purpose of factor is not alone determinative. conclusive weight would make nugatory the prohibition against allowing personal, expenses. as to the origin of the direction or suggestion of a physician Mid the treatment bear directly on the physical condition in the expense. Was it incurred at To accord it Thus, also it is also important to inquire living, or family 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company I 11 questiony - did the treatment bear such a direct or proximate therapeutic relations to the bodily condition as to justify a reasonable belief the same would be efficaciousy was the treatment so proximate in time to the onset or recurrence of the disease or condition as to make one the true occasion of the other' general, as contrasted with some specific physical improvement? thus, eliminating expense incurred for We conclude that the $50 limit does not apply to the lodging component of the cost of the Gatehouse program. D. Travel Expenses for Petitioners and Their 1 3 4 5 6 7 8 9 10 Children and the Pharmacy Expenses 11 The costs of travel to Arizona for 12 Petitioner, his wife, and their son and other 13 14 15 16 17 18 19 20 21 22 23 24 25 daughter, to participate in a Gatehouse program are listed in Exhibit 7-P. Their participation in these programs was an essential part of Petitioners' daughter's treatment. The cost of airfare and ground transportation (airline tickets, baggage fees, parking, rental cars, and gasoline) for Petitioners and their children, are deductible. Lodging is deductible only if the medical care is provided by a physician in a hospital or other qualifying medical facility. Section 213(d)(2). Thus, none of the hotel expenses listed in Exhibit 7-P are deductible. Urbauer v. Commissioner, T.C. Memo. 170 (1992). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 The pharmacy expenses and expenses claimed by Petitioners were for their daughter. They were expenses for general personal care, not medical expenses, and so those expenses are not deductible. Thus, $3,337.40 of the expenses shown on Exhibit 7-P is not deductible and $4,524.60 is deductible. As a result, the total allowed under this opinion before application of the 7.5 percent floor is $102,098, 9 which is $3,073 more than Petitioners claimed on 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 their amended return. In appropriate cases, a taxpayer may be allowed a greater deduction than claimed by taxpayer. See, e.g., American Offshore Inc. v. Commissioner, 97 T.C. 579, 592, (1991). During trial on February 26, Petitioner stated that taking into account additional substantiation he located after they filed their amended return, Petitioners had $108,000 in medical expenses. It appears that, beginning with the filing of their 2009 tax return, maximizing this deduction was not a priority for Petitioners. Decision will be entered under Rule 155. This concludes the Court's oral findings of fact and opinion in this case, and the Court is adjourned. (Whereupon, at 11:58 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com