any schools and programs provide education and treatment to students with learning and other disabilities, including emotional and behavioral disorders. Insurance rarely covers such costly programs. CPAs can assist parents in determining the deductibility of tuition, related fees and medical expenses for dependents with disabilities.
WHICH EXPENSES QUALIFY?
Under IRC section 213(a), a taxpayer can deduct expenses paid during the tax year for medical care for the individual, and his or her spouse or dependents, to the extent they exceed 7.5% of adjusted gross income. Under section 213(d)(1)(A), “medical expenses” include 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.”
School tuition and fees may meet these tests. Under regulations section 1.213-1(e)(1)(v)(a), medical care includes the cost of a special school for a mentally or physically handicapped individual if the institution’s resources for alleviating the handicap were a principal reason for attendance. The cost of supplied meals and lodging and ordinary education incidentally furnished also qualifies. Medical care also includes the cost of the dependent’s attending a special school designed to compensate for or overcome a physical handicap or to qualify him or her for future normal education or normal living. Under revenue ruling 70-285, the distinguishing characteristic of a “special school” is its curriculum.
Examples. While regulations section 1.213-1(e)(1)(v)(a) cites as examples of special schools those that teach Braille or lip reading, court cases and IRS rulings have expanded the category to include costs of school programs that address
Severe learning disabilities caused by neurological
Inability to function in a normal school setting.
Severe adjustment reactions (including depression) to adolescence.
Attention-deficit hyperactivity disorder.
Behavioral problems due to chronic drug abuse.
Dyslexia and other specific learning disabilities.
PROVING MEDICAL NEED
The taxpayer also must show that the attendee had a medical need for the school’s resources and that the program was intended and expected to be of medical benefit.
Eligible students also may qualify for additional deductible medical
expenses, including meals and lodging (paid to the school as part of
its program), directly related incidental fees and expenses, local
transportation costs and out-of-town transportation costs for the
attendee and family members if the school is in another city and
visits are part of the school program. Qualifying medical expenses
also may be reimbursable via a section 125 cafeteria plan.
CPAs increasingly need to understand these rules and the potential benefits to clients. For more information, see the Tax Clinic, edited by Kevin Reilly, in the November 2002 issue of The Tax Adviser.
—Lesli Laffie, editor
The Tax Adviser
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