Opinion
Civil No. 99-762
October 18, 2000
Neal Shapiro, Bernick and Lifson, P.A., for and on behalf of Plaintiff.
Carl J. Tierney, Trial Attorney, Tax Division, U.S. Department of Justice for and on behalf of the United States.
MEMORANDUM OPINION AND ORDER
Before the Court are cross motions for summary judgment. Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986).
The underlying facts of this case are not in dispute. Plaintiff's wife, Shirley Zipkin, suffers from Multiple Chemical Sensitivity Syndrome. Mrs. Zipkin's physician recommended that the Zipkins build a home made of steel, concrete and other special components, that also included special ventilation and filtering systems. In September 1992, Plaintiff entered into a contract with an architect to design a home with these special medical features to accommodate Mrs. Zipkin's medical needs. In September 1993, Plaintiff entered into a contract L. Cramer Co. to construct the residence. The contract called for progress payments. From July 1992 to December 1994, Plaintiff paid $1,216,230 for various costs related to the construction of a residence. Plaintiff also entered into a mortgage for $800,000 in October 1994, the proceeds of which were paid to various contractors for construction costs.
The construction costs directly related to the special features required by Mrs. Zipkin's medical condition exceeded the fair market value of the home by $645,659. Plaintiff filed an amended return for the 1995 tax year in February 1997, seeking a refund of $261,703. The refund amount was based on medical expense deductions of $755,231. The IRS partially allowed the refund — in the amount of $20,891 — based on medical expense deductions that were actually paid in 1995. Construction costs that were actually paid in 1992, 1993 and 1994 were disallowed.
The issue in this case is what is the proper medical expense deduction for the tax year 1995.
Section 213(a) of the Internal Revenue Code provides that a taxpayer may take as a deduction, ordinary and necessary medical expenses paid or incurred during the taxable year. The Internal Revenue Service Regulations further provide that:
a capital expenditure for the permanent improvement or betterment of property which would not ordinarily be for the purpose of medical care (within the meaning of this paragraph) may, nevertheless, qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property, if the particular expenditure is directly related to medical care . . . .26 C.F.R. § 1.213-1(e)(1)(iii).
Plaintiff asserts that prepayments for medical care are not ordinarily allowed as a current deduction, citing to Rose v. Commissioner, 52 T.C. 521 (1969); Bassett v. Commissioner, 26 T.C. 619 (1956); Hunt v. Commissioner, T.C.M. 226 (1972). in this case, the expenses incurred for the construction of the home to address Mrs. Zipkin's medical condition should be considered prepayments for medical care, as the home provided no medical benefit to Mrs. Zipkin until it was proved habitable by Mrs. Zipkin. Plaintiff also asserts that the amount of deduction could not be ascertained until after the home was complete, as the deduction is the difference between the actual cost of construction and the home's fair market value.
The United States asserts that the cases cited by Plaintiff are not applicable to this case, as Plaintiff was legally obligated to make the payments in tax years prior to 1995. However, the Zipkins had entered into a contract to build a home that Mrs. Zipkin could live in. Whether or not the contractor had met the terms of such contract was not established until 1995, when the home became habitable. If the home were proven to be uninhabitable, arguably Plaintiff could have sued to the contractor for breach of contract, and would thus not be legally obligated to pay the contractor.
The Court agrees with the position of Plaintiff. Based on the unique facts of this case, the deduction for medical expenses incurred in the construction of the Zipkin's home is properly taken in the year the home became habitable, 1995. Because it appears the United States does not dispute that $645,659 is the correct amount of deduction, if allowed by the Court, judgment will be granted in Plaintiff's favor in the amount of $261,703.
IT IS HEREBY ORDERED that the United States shall refund the amount of $261,703.00 plus accrued interest to the Plaintiff, Lawrence S. Zipkin.
LET JUDGMENT BE ENTERED ACCORDINGLY.