Friday, April 14, 2017

No Medical Deduction for Same-sex Partner's In Vitro Fertilization (IVF) Costs

The taxpayer and his same-sex partner attempted to have a child through an IVF process with an unrelated gestational surrogate. The taxpayer paid approximately $57,000 for the IVF process, which he sought to deduct as medical expenses on his tax return. After the IRS disallowed the claimed deduction, the taxpayer pursued an internal IRS appeal and, upon receiving an adverse ruling, filed a lawsuit. The district court agreed with the IRS that the IVF costs were not deductible medical expenses under IRC Sec. 213 because they were not incurred for the medical care of the taxpayer, his spouse, or a dependent. Furthermore, the IVF costs didn't qualify as medical care under IRC Sec. 213 because they were neither for diagnosis, cure, mitigation, treatment, prevention of disease, nor to affect any bodily structure or function of the taxpayer. Joseph F. Morrissey, 119 AFTR 2d 2017-401 (D.C. FL).

Judgment against S Corporation Shareholder Didn't Create Basis

The taxpayer owned 50% of an S corporation that developed and sold residential and commercial real estate. The business relied heavily on debt financing, and virtually all of the loans were guaranteed by the taxpayer. When the corporation defaulted on the loans, the lenders sued the taxpayer on her guarantee, which resulted in liens against her property. To take advantage of S corporation losses, the taxpayer increased her stock basis by her prorata share of the unpaid judgment amounts. The taxpayer argued that a basis increase was justified because the judgment against her demonstrated an actual economic outlay. The Tax Court disagreed, concluding that the lenders initially didn't look to her as a source of repayment. A basis increase would have been appropriate only if the taxpayer had made payments on the guaranties or judgment. Rupert and Sandra Phillips , TC Memo 2017-61 (Tax Ct.).

IRS Releases Updated Publication on Employment Tax Audits

The IRS has released an updated version of Publication 5146 (Employment Tax Returns: Examinations and Appeal Rights). Among other things, the publication identifies common employment tax audit triggers, such as incorrect amounts detected by computer programs and information from compliance projects. The publication also explains where the IRS looks for information once an audit begins. In general, the IRS is authorized to contact neighbors, banks, employers, employees, or independent contractors once an audit commences. In addition, the publication features coverage of relief provisions that may apply if the IRS determines an employment tax deficiency. The revised publication can be found at .