Are special school expenses a medical deduction?

Today, taxpayers have many choices when seeking medical help, especially specialized help for their child. Often, they wonder whether they can deduct, for Federal tax purposes, the cost of special schooling, if their child were to require it due to a medical condition.

Example: C, a taxpayer, has a child, S, who suffers from emotional and disciplinary disorders. On the advice of a psychiatrist, C transfers S to a boarding school in Connecticut that specializes in college preparatory education for children with certain disabilities. Within three weeks, the school asks C to remove S, because S is disruptive. The school psychiatrist advises C to transfer S to a "therapeutic wilderness program" in Utah. S completes the program within six months. C then transfers S to a boarding school in Georgia, primarily a college preparatory school for special-needs children. The unreimbursed cost for these schools during the year is approximately $35,000.

Can C deduct the expenses? Under Sec. 213(a), a taxpayer can deduct expenses paid during the tax year, not compensated by insurance or otherwise, for his or her medical care or that of a spouse or a dependent, to the extent that such expenses exceed 7.5% of adjusted gross income. The floor is 10% for taxpayers subject to the alternative minimum tax; see Sec. 56(b)(1)(B)).

According to Regs. Sec. 1.2131 (e)(1)(v)(a) , although ordinary education is not medical care, the cost of medical care does include the cost of attending a special school for mentally or physically handicapped individuals, if the institution's resources for alleviating such handicap are a principal reason for the student's presence at the school. In such a case, the cost of attending the special school includes the cost of meals and lodging (if supplied), as well as that of ordinary education furnished incidental to the special services. Thus, the cost of medical care includes the cost of attending a special school designed to help students compensate for, or overcome, a physical handicap, and to qualify them for future normal education or for normal living (e.g., a school that teaches students to read Braille or to lip read).

Cases

Merely obtaining a psychiatrist's recommendation that a student should attend a particular school does not justify a deduction, even if the doctor's diagnoses the student as being mentally ill; see Fischer, 50 TC 164 (1968), acq., 1969-2 CB xxiv; Atkinson, 44 TC 39 (1965); and Enck, TC Memo 1967-58 (1967). In Grunwald, 51TC 108 (1968), for example, even though a taxpayer took a professional's advice and sent his sons to a boarding school for their mental and emotional well-being, he could not deduct the expenses as medical expenses; the school was primarily for educational purposes, not regularly engaged in providing services for treating mental and emotional disturbances.

In Dreifus Est., TC Memo 197783, the court denied taxpayers a medical expense deduction for the cost of sending their hyperactive sons to a boarding school based on a doctor's recommendation. Although the children's condition improved, the taxpayers could not demonstrate (within the meaning of Regs. Sec. 1.213-1 (e)(1)(v)(a)) that the school was special, such that the expenses qualified as medical expenses. Rather, the expenses were nondeductible educational expenses.

Glaze, TC Memo 1961-244, demonstrated that a deduction was not available merely because a child was unable to adjust to, and remain in, public schools.

Several cases show that even though a student with emotional or learning problems attended a private school because it provided individual attention, small class sizes, and/or strict discipline, the school did not qualify as a "special school," because "ordinary education" was more than an incidental purpose for attending; see Feinberg, TC Memo 1966-145; Newkirk, DC OH, 5/19/77; and Shidler, TC Memo 1971-126.

Discussion

The issue with "special schools" is whether medical care is incidental to education or education is incidental to medical care. For the former, only the medical care cost is deductible. As to the latter, all expenses are medical deductions, including the educational expenses.

In the example, the Connecticut and Georgia boarding schools were actually college preparatory schools for emotionally challenged students and the medical/mental care was incidental to education, Thus, C could deduct any direct medical/mental care costs that could be segregated from the cost of attending these schools. However, because ordinary education was the schools' main purpose, C could not deduct the flail cost.

The therapeutic wilderness program in the school in Utah, albeit unusual, was oriented toward treating students with emotional problems through wilderness expeditions. Normally, the school sets up individualized therapeutic programs that allow students to progress in their skills, group participation and behavior and attitude. Its position is that moving the student to the wilderness creates a significant life change that shifts students outside of their "emotional comfort zone," requiring them to master different skills to care for themselves. The program's objective is to help students recognize the results of their behavioral choices and to encourage them to try different coping skills. Although the program is somewhat removed from the mainstream, it nonetheless appears to directly treat mental and emotional conditions. Academic achievements in this program seem to be ancillary. Thus, the entire cost of this program should qualify as a medical deduction. (For further discussion, see Goldsberry, Tenney and Luke, Tax Clinic, "Deductibility of Tuition and Related Fees as Medical Expenses," T-FA, November 2002, p. 701.)

FROM DANIEL J. GIBSON, CPA, EA, AMPER, POLITZINER & MATTIA P.A., EDISON, NJ