Taxpayers are always asking their CPA what they can deduct to save on taxes. Some deductions seem pretty straight forward (home mortgage interest, charitable contributions, etc.). Others are much grayer and depend on particular facts and circumstances.

What Counts as a Medical Expense?

One tax deduction that may be available is for medical expenses. The IRS defines a medical expense as 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.”

The Sex Deduction

An attorney in New York read several articles on the health benefits of sexual activity. Over a two year period, he paid over $100,000 to prostitutes and claimed the costs as medical expenses. His returns were audited for those two years. Not surprisingly, the IRS said he couldn’t deduct the costs paid to the prostitutes. One of the reasons the IRS gave was that the attorney did not document the names, addresses and amount paid to each “provider.” Not wanting to concede, his case ended up in court. The judge said you lose because prostitution is illegal in New York. Period. He didn’t mention the documentation requirement or the requirement that the “treatment” wasn’t prescribed by a doctor.

What Can We Take Away From This?

Makes you wonder what the outcome would have been had the case been tried in a state like Nevada. Assuming the taxpayer could have found a doctor to prescribe sexual activity to increase health benefits, and the taxpayer was able to document the names, addresses and amounts paid, maybe the $100,000 would have been accepted as legitimate medical costs? I guess that’s for another day in court.

So much of tax law hinges on documentation as well as facts and circumstances. If this case proves nothing else, the IRS and courts say you need proper documentation if you plan to take a deduction.

Oh, one more interesting fact about the case; the taxpayer was a tax attorney!

Contact A Professional This Tax Season

If you’re looking to ease your workload or maximize your deductions this year, contact one of our professionals today by calling (919) 872-0866 or by filling out the form below.

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