Guidance Released on Medical Expense Deductions

Guidance Released on Medical Expense Deductions (Rev. Rul. 2007-72)

The IRS has issued guidance regarding the deductibility of amounts paid by individuals for diagnostic and similar procedures, including certain devices, not compensated by insurance or otherwise, as medical care expenses under Code Sec. 213(a). In each of the three scenarios presented, the amounts paid by taxpayers were expenses for medical care deductible under Code Sec. 213(a), subject to the limitations of that section including the seven and a half percent floor on deductibility.

Under Code Sec. 213(d)(1)(A), medical care expenses include amounts paid related to the diagnosis, mitigation, treatment, cure or prevention of disease, or any condition affecting any structure or function of the body, including obstetrical services. Diagnosis includes the determination of the absence of disease, and may involve testing for changes in the function of the body unrelated to disease. The guidance clarifies that (1) Code Sec. 213 does not limit the deduction to amounts paid for the least expensive form of medical care applicable, and (2) a physician's recommendation, while often important to determine whether certain expenses are for medical or personal reasons, is unnecessary when the expenditures are for items wholly medical in nature and that serve no other function.

In the first scenario, money spent for an annual physical examination qualified as an expense for medical care, even though the taxpayer was not experiencing any symptoms of illness. In the second scenario, a taxpayer who was not experiencing any symptoms of illness paid for a full-body electronic scan at a clinic without having obtained a physician's recommendation for this procedure. Because the procedure served no non-medical purpose, it, too, qualified as an expense for medical care. In addition, neither the high cost of the procedure nor the possibility of less expensive alternative diagnostic tests barred the deductibility of the expense. Finally, in the third scenario, the expense of a self-administered pregnancy test kit qualified as an expense for medical care, even though it tested the healthy functioning of the body rather than attempted to detect disease.

Rev. Rul. 2007-72, 2007FED ¶46,744