Daughter Gets Tax Deduction For Expenses Mom Paid

by Kenneth Hoffman in , ,

Judith F. Lang v. Commissioner, TC Memo. 2010-286, December 30, 2010.

Mother paid medical expenses directly to provider, and also paid daughter’s real estate taxes. IRS denied deduction to daughter since the daughter did not pay the expenses. Tax Court ruled that based upon substance over form, the mother had in fact made a gift to the daughter, and the daughter was the payor of the expenses. Hence, the daughter is entitled to the deduction.


In 2006, Judith Lang incurred $27,776 of deductible medical expenses (assumed to be net of the 7½% of AGI limitation), and had $6,840 of real estate taxes.  Her mother, Frances Field, paid $24,559 directly to Judith’s medical providers and paid $5,508 directly to the city to pay for Judith’s real estate tax. Mrs. Field had no obligation to make these payments. Nor did she claim an income tax deduction for these payments.


In order to claim a deduction for medical expenses, the expense must be for the taxpayer, spouse or dependent. Since Judith was not a dependent of Mrs. Field, Mrs. Field could not legally claim a deduction. In order to claim a deduction for real estate taxes, one must be legally obligated to make the payment. Mrs. Field was not.  The second requirement for each of these expenses is that the taxpayer actually make the payment.  It is this second requirement that was the subject of the case.

The IRS argued that Judith did not make the payment, and therefore she could not take the deduction. Judith countered that based upon substance over form, she received a gift from mom, and she was the actual payor of the expenses.


The Court sided with Judith, stating that Mrs. Field did make a gift to Judith and Judith gets credit for making the payment. The Court noted that Mrs. Field’s payments directly to the medical providers meant that, under the gift tax rules, these payments were not taxable gifts. But the Court said that the gift tax rules do not control for income tax treatment. Hence, Judith is entitled to the deduction.


If the IRS position was allowed to stand, then no one would be entitled to a deduction in this case; mom because it wasn’t her obligation, and daughter because she didn’t pay it. The Court seemed to look at this as a situation where SOMEONE should get the deduction, and wisely (in my opinion) decided in favor of Judith.


It should be noted that since the medical payments did not constitute a gift, and the real estate tax payment did not exceed the annual exclusion, there was no gift tax issue. I would suggest that it would not be a bad idea in situations such as this, or similar ones such as a grandparent paying college tuition and  the parent claiming a deduction or credit, that the actual payor file a gift tax return to document that they’ve made a gift to the person obligated to make the payment, so that that person can claim the deduction/credit.


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