                                                                                REPORTS

                                                                                   OF THE

                                                         UNITED STATES TAX COURT


                                           ESTATE OF LILLIAN BARAL, DECEASED, DAVID H. BARAL,
                                               ADMINISTRATOR, PETITIONER v. COMMISSIONER
                                                   OF INTERNAL REVENUE, RESPONDENT

                                                        Docket No. 3618–10.                            Filed July 5, 2011.

                                                  D’s physician diagnosed her as suffering from dementia and
                                               determined that, because of her diminished capacity, she
                                               required assistance and supervision 24 hours a day for med-
                                               ical reasons, as well as for her safety. D’s brother, her
                                               attorney-in-fact, hired caregivers to provide the necessary
                                               assistance. During 2007, the year at issue, D paid $760 to D’s
                                               physicians and the New York University Hospital Center for
                                               medical care provided to D, $5,566 to D’s caregivers for sup-
                                               plies, and $49,580 to D’s caregivers for their services. Held: D
                                               paid $760 in 2007 to her physicians and the New York
                                               University Hospital Center for the diagnosis, cure, mitigation,
                                               treatment, or prevention of disease, and that amount was
                                               paid for medical care as defined in sec. 213(d)(1)(A), I.R.C.,
                                               and was not reimbursed by insurance or otherwise. Held, fur-
                                               ther, P has not established that the $5,566 paid to D’s care-
                                               givers for supplies was paid for medical care as defined in sec.
                                               213(d)(1), I.R.C. Held, further, D was certified by her physi-
                                               cian, a licensed health care practitioner, as requiring substan-
                                               tial supervision to protect her from threats to her health and
                                               safety because of her severe cognitive impairment, and there-
                                               fore she was a chronically ill individual as defined in sec.
                                               7702B(c)(2)(A), I.R.C. Held, further, the services provided to D
                                               by her caregivers were necessary maintenance and personal
                                               care services that she required because of her diminished
                                               capacity; were provided pursuant to a plan of care prescribed
                                               by a licensed health care practitioner; and therefore are quali-

                                                                                                                                     1




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                                      2                  137 UNITED STATES TAX COURT REPORTS                                        (1)


                                               fied long-term care services as defined in sec. 7702B(c), I.R.C.
                                               Held, further, the $49,580 paid to D’s caregivers for their
                                               qualified long-term care services was an amount paid for med-
                                               ical care as defined in sec. 213(d)(1)(C), I.R.C.

                                           David H. Baral, for petitioner.
                                           Scott A. Hovey, for respondent.

                                                                                  OPINION

                                         DAWSON, Judge: Respondent determined that decedent was
                                      liable for a $17,681 deficiency in Federal income tax and
                                      additions to tax of $3,107.47 under section 6651(a)(1),
                                      $1,173.93 under section 6651(a)(2), and $608.96 under sec-
                                      tion 6654(a) for 2007. 1 The issue remaining for decision is
                                      whether decedent may deduct as medical care expenses
                                      under section 213(a) the following amounts paid during
                                      2007: 2 (1) $760 paid to decedent’s physicians and the New
                                      York University Hospital Center; (2) $5,566 paid to
                                      decedent’s caregivers for supplies; and (3) $49,580 paid to
                                      decedent’s caregivers for their services. The payments for the
                                      caregivers’ services are deductible if the services constitute
                                      qualified long-term care services as defined in section
                                      7702B(c).

                                                                               Background
                                        Some of the facts have been stipulated and are so found.
                                      The stipulation of facts and supplemental stipulation of facts
                                      and the exhibits attached thereto are incorporated herein by
                                      this reference. 3
                                        Decedent, Lillian Baral, was a resident of Queens, New
                                      York, when she died on August 28, 2008, at the age of 92.
                                         1 Unless otherwise indicated, section references are to the Internal Revenue Code in effect for

                                      2007, and Rule references are to the Tax Court Rules of Practice and Procedure.
                                         2 Respondent conceded all additions to tax. In the petition, petitioner asserted that decedent

                                      was not required to file a Federal income tax return or pay Federal income tax for 2007 because
                                      she suffered from severe dementia and that the burden of proof was on respondent. Respondent
                                      filed a motion for summary judgment. Petitioner objected to respondent’s motion. The Court
                                      granted respondent partial summary judgment that (1) decedent’s mental incapacity did not ex-
                                      cuse her from her obligation to file an income tax return and pay the tax and (2) petitioner has
                                      the burden of proof. In petitioner’s objection, petitioner asserted that decedent was entitled to
                                      deductions for amounts paid for medical care and decedent’s entitlement to a medical expense
                                      deduction was tried by consent of the parties.
                                         3 At the trial the parties filed a stipulation of facts but informed the Court that decedent’s

                                      physician had not responded to their requests for decedent’s records. The Court left the record
                                      open to give the parties additional time to obtain the records. The parties filed a supplemental
                                      stipulation of facts with the records attached as exhibits.




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                                      (1)                     ESTATE OF BARAL v. COMMISSIONER                                        3


                                      Her brother, David H. Baral, is the administrator of her
                                      estate. He resided in the District of Columbia when the peti-
                                      tion was filed in this case. Mr. Baral handled all of
                                      decedent’s personal and financial affairs under a power of
                                      attorney during the last years of her life. He wrote checks
                                      from her bank account to pay her bills.
                                         Martin Finkelstein, M.D., was decedent’s primary care
                                      physician from 2002 until her death. He diagnosed her as
                                      suffering from dementia and prescribed Aricept and
                                      Namenda, drugs usually prescribed for patients diagnosed
                                      with Alzheimer’s disease or dementia. Decedent’s hospital
                                      records indicate that the dementia had been diagnosed as
                                      early as 2004. In April 2004 decedent was hospitalized.
                                      Decedent’s medical records show that when she was hospital-
                                      ized she had not been compliant with taking her prescription
                                      medicines. Following another hospitalization in November
                                      2004 she was evaluated so as to determine whether she was
                                      taking her medications properly and whether it was safe for
                                      her to live alone and so as to formulate a long-term plan of
                                      care.
                                         A medical summary in Dr. Finkelstein’s records dated May
                                      1, 2007, shows that decedent had been evaluated on
                                      December 26, 2006. 4 The medical summary indicates that as
                                      of that December 26, 2006, (1) decedent’s ability to commu-
                                      nicate orally was impaired, (2) she was confused, (3) she
                                      required assistance with activities of daily living, (4) she
                                      required supervision due to her memory deficit, (5) she was
                                      at risk of falling and, therefore, could not be left alone, and
                                      (6) she required baseline homecare services.
                                         Dr. Finklestein determined that, because of decedent’s
                                      diminished capacity, she required assistance and supervision
                                      24 hours a day for medical reasons and for her safety. Mr.
                                      Baral engaged a company recommended by Dr. Finkelstein to
                                      provide the required assistance to decedent. Margurita
                                      Pzevorski was one of the individuals sent by the company to
                                      provide decedent with the necessary care.
                                         To reduce the cost of care, Mr. Baral terminated the com-
                                      pany after a couple months (before the end of 2006) and
                                      hired Ms. Pzevorski directly to provide the necessary 24-
                                        4 Mr. Baral did not obtain Dr. Finkelstein’s records for years other than 2007. Consequently,

                                      the record in this case does not include the results of evaluations of decedent’s condition made
                                      before Dec. 26, 2006.




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                                      4                  137 UNITED STATES TAX COURT REPORTS                                        (1)


                                      hour-a-day care. Ms. Pzevorski assisted decedent with
                                      bathing, dressing, trips to the doctor, taking her medications,
                                      and transferring to a wheelchair. Ms. Pzevorski took 5 weeks
                                      off during 2007. Another caregiver, Walters Emily
                                      Jakubowski, provided the 24-hour-a-day care for decedent
                                      during those weeks.
                                         Ms. Pzevorski and Ms. Jakubowski also paid some of
                                      decedent’s miscellaneous expenses and submitted receipts to
                                      Mr. Baral for reimbursement. Mr. Baral paid Ms. Pzevorski
                                      and Ms. Jakubowski for their services and reimbursed them
                                      for the supplies with separate checks drawn on decedent’s
                                      bank account. During 2007 Mr. Baral paid Ms. Pzevorski and
                                      Ms. Jakubowski $40,760 and $8,820, respectively, for their
                                      services, and he reimbursed them $4,716 and $850, respec-
                                      tively, for decedent’s expenses. In 2007, he also paid from
                                      decedent’s account a total of $760 to Dr. Finkelstein and
                                      decedent’s other physicians and to the New York University
                                      Hospital Center for her medical care. Decedent was not
                                      reimbursed by insurance or otherwise for the payments to
                                      the caregivers, the physicians, or the New York University
                                      Hospital Center.
                                         Mr. Baral spoke on the telephone to decedent and her care-
                                      giver every day. Although decedent knew who Mr. Baral was
                                      and could communicate with him, the conversations were
                                      limited, and it was obvious to Mr. Baral that she had ‘‘lost
                                      her memory’’. Decedent’s caregivers kept Mr. Baral informed
                                      of decedent’s activities and condition. Decedent’s caregivers
                                      were unrelated to her or Mr. Baral.
                                         Decedent received the following income in 2007: (1) $245
                                      interest income, (2) $29,331 ordinary dividends, (3) $13,239
                                      capital gain, (4) $21,246 Social Security income, (5) $7,232
                                      taxable distribution from an IRA, and (6) $33,355 distribution
                                      from a pension fund.
                                         Decedent did not file a Federal income tax return for 2007
                                      or pay Federal income tax for 2007. Nor did Mr. Baral, as
                                      decedent’s attorney-in-fact, file a return on her behalf. Con-
                                      sequently, respondent filed a substitute for return for
                                      decedent pursuant to section 6020(b) on the basis of informa-
                                      tion provided by third parties. On November 9, 2009,
                                      respondent sent petitioner a notice of deficiency for 2007 in
                                      which he determined that decedent received $94,229 of
                                      income from third parties. Respondent further determined




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                                      (1)                     ESTATE OF BARAL v. COMMISSIONER                                        5


                                      that decedent was entitled to a personal exemption of $3,400
                                      and a standard deduction of $6,650, resulting in an income
                                      tax deficiency of $17,681. The parties agree that decedent’s
                                      adjusted gross income in 2007 was $94,229.

                                                                                 Discussion
                                         Certain expenses paid during the taxable year for the med-
                                      ical care of the taxpayer or a dependent (as defined in section
                                      152) that are not compensated for by insurance or otherwise
                                      may be allowed as a deduction to the extent that the
                                      expenses exceed 7.5 percent of the taxpayer’s adjusted gross
                                      income. Sec. 213(a). Decedent had adjusted gross income of
                                      $94,229 in 2007 and may be allowed a deduction of the
                                      amount paid for medical care that exceeds $7,067—7.5 per-
                                      cent of decedent’s adjusted gross income.
                                         As relevant here, medical care includes amounts paid for
                                      the diagnosis, cure, mitigation, treatment, or prevention of
                                      disease, and amounts paid for qualified long-term care serv-
                                      ices, as defined in section 7702B(c). Sec. 213(d)(1)(A), (C).
                                      During 2007 Mr. Baral paid from decedent’s account $760 to
                                      New York University Hospital Center and decedent’s physi-
                                      cians, including Dr. Finkelstein, for decedent’s medical care.
                                      Those expenses were paid for the diagnosis, cure, mitigation,
                                      and/or treatment of decedent’s disease and, therefore, con-
                                      stitute medical care expenses deductible under section
                                      213(a). Mr. Baral also reimbursed Ms. Pzevorski and Ms.
                                      Jakubowski $4,716 and $850, respectively, for decedent’s
                                      expenses. Although they gave him receipts for the expenses,
                                      he did not provide the receipts to the Court. He has not
                                      identified the expenses or otherwise substantiated that they
                                      are medical care expenses. Consequently, those reimbursed
                                      expenses are not deductible under section 213(a).
                                         Mr. Baral also paid Ms. Pzevorski and Ms. Jakubowski
                                      $49,580 ($40,760 + $8,820) for their services to decedent. The
                                      caregivers are not licensed healthcare providers, and the pay-
                                      ments to them were not for the diagnosis, cure, mitigation,
                                      treatment, or prevention of decedent’s disease. However, the
                                      amounts paid to the caregivers are deductible if their serv-
                                      ices are qualified long-term care services as defined in sec-
                                      tion 7702B(c). See sec. 213(d)(1)(C).




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                                      6                  137 UNITED STATES TAX COURT REPORTS                                        (1)


                                         ‘‘Qualified long-term care services’’ means necessary diag-
                                      nostic, preventative, therapeutic, curing, treating, mitigating,
                                      and rehabilitative services and maintenance or personal care
                                      services required by a chronically ill individual and provided
                                      pursuant to a plan of care prescribed by a licensed health
                                      care practitioner. Sec. 7702B(c)(1). A ‘‘chronically ill indi-
                                      vidual’’ means any individual who has been certified by a
                                      licensed health care practitioner as (i) being unable to per-
                                      form at least two of six specified activities of daily living
                                      (eating, toileting, transferring, bathing, dressing, and con-
                                      tinence) for a period of at least 90 days due to a loss of func-
                                      tional capacity (the ADL level of disability); (ii) having a level
                                      of disability similar to the ADL level of disability as deter-
                                      mined under regulations prescribed by the Secretary in con-
                                      sultation with the Secretary of Health and Human Services
                                      (the similar level of disability); or (iii) requiring substantial
                                      supervision to protect the individual from threats to health
                                      and safety due to severe cognitive impairment (cognitive
                                      impairment). 5 Sec. 7702B(c)(2).
                                         A licensed health care practitioner means any physician,
                                      registered professional nurse, licensed social worker, or other
                                      individual who meets requirements that may be prescribed
                                      by the Secretary. Sec. 7702B(c)(4). Dr. Finkelstein, a physi-
                                      cian, is a licensed healthcare professional. The December
                                      2006 evaluation showed that decedent required assistance
                                      with activities of daily living but does not specify which
                                      activities of daily living. Thus, while we are unable to con-
                                      clude that Dr. Finkelstein certified that decedent had the
                                      ADL level of disability, he diagnosed decedent as suffering
                                      from severe dementia; i.e., decedent was cognitively
                                      impaired. As early as 2004 her cognitive impairment pre-
                                      vented her from properly taking her prescription medicine.
                                         5 In respondent’s pretrial memorandum it is asserted that petitioner had not substantiated the

                                      amount of decedent’s medical care expenses for 2007, whether she was reimbursed for the ex-
                                      penses, or the medical nature of the expenses. Citing Gardner v. Commissioner, T.C. Memo.
                                      1983–541, and sec. 1.213–1(e)(1)(ii), Income Tax Regs., respondent noted that ‘‘expenses incurred
                                      which are merely beneficial to the general health of an individual are not deductible.’’ Further,
                                      citing Borgmann v. Commissioner, 438 F.2d 1211 (9th Cir. 1971), affg. T.C. Memo. 1969–129,
                                      respondent asserted that ‘‘the salary and cost of room and board for housekeepers hired on the
                                      advice of a doctor are not deductible medical expenses.’’ At trial respondent asserted that peti-
                                      tioner had not established that (1) decedent’s ‘‘significant body functions were impaired’’ during
                                      2007 or (2) services were provided to decedent ‘‘pursuant to a plan established by a qualified
                                      health care professional’’. In a telephone conference held after the supplemental stipulation of
                                      facts was filed with the Court the parties stated that they did not wish to file briefs but would
                                      rely on the pretrial memorandums.




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                                      (1)                     ESTATE OF BARAL v. COMMISSIONER                                        7


                                      Failure to take prescribed medication posed a risk to
                                      decedent’s health. Dr. Finkelstein certified decedent as
                                      requiring substantial supervision to protect her from threats
                                      to her health and safety due to her severe cognitive impair-
                                      ment. Therefore, decedent was a chronically ill individual as
                                      defined in section 7702B(c)(2)(A).
                                         ‘‘Maintenance or personal care services’’ means any care
                                      that has the primary purpose of providing needed assistance
                                      with any of the disabilities that result in the individual’s
                                      qualifying as a chronically ill individual, including protection
                                      from threats to health and safety due to severe cognitive
                                      impairment. Sec. 7702B(c)(3). The December 2006 evaluation
                                      showed that decedent required supervision because of her
                                      memory deficit. Dr. Finkelstein determined that decedent
                                      required 24-hour-a-day supervision to protect her from
                                      threats to her safety and health created by her dementia.
                                      Mr. Baral hired decedent’s caregivers to provide the 24-hour
                                      care Dr. Finkelstein determined was necessary to protect her
                                      health and safety. The services provided to decedent by her
                                      caregivers were necessary maintenance and personal care
                                      services she required because of her diminished capacity and
                                      they were provided pursuant to a plan of care prescribed by
                                      a licensed health care practitioner. Therefore, they are quali-
                                      fied long-term care services as defined in section 7702B(c).

                                                                                 Conclusion
                                         We hold that the $49,580 paid in 2007 to decedent’s care-
                                      givers for their qualified long-term care services was an
                                      amount paid for medical care as defined in section
                                      213(d)(1)(C). Decedent also paid $760 in that year to her
                                      physicians and the New York University Hospital Center for
                                      their services. She was not reimbursed by insurance or other-
                                      wise for those payments, which totaled $50,340. Thus
                                      decedent had adjusted gross income of $94,229 in 2007 and
                                      may be allowed a deduction of $43,273—the amount paid for
                                      medical care that exceeds $7,067 (7.5 percent of decedent’s
                                      adjusted gross income).
                                         As previously stated, we hold that petitioner has not estab-
                                      lished that the $5,566 reimbursed expenses paid to
                                      decedent’s caregivers are deductible as medical expenses
                                      under section 213(a).




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                                      8                  137 UNITED STATES TAX COURT REPORTS                                        (1)


                                           To reflect the parties’ concessions and our holdings herein,
                                                                         Decision will be entered under Rule 155.
                                                                               f




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