                       T.C. Memo. 2010-286



                      UNITED STATES TAX COURT



                  JUDITH F. LANG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 27276-08.               Filed December 30, 2010.



     John O’Brien and Timothy O’Brien (specially recognized), for

petitioner.

     Molly H. Donohue, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   Respondent determined a deficiency in

petitioner’s Federal income tax for tax year 2006.    The sole

issue for decision is whether petitioner may deduct medical

expenses and real estate tax.   For the reasons stated herein, we

find that petitioner may deduct both.
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                              Background

     The parties submitted this case fully stipulated pursuant to

Rule 122.1   We incorporate the stipulation of facts into our

findings by this reference.    Petitioner resided in Massachusetts

when the petition was filed.

     Petitioner timely filed her 2006 Federal income tax return.

On Schedule A, Itemized Deductions, petitioner claimed $35,355 in

itemized deductions consisting of:      (1) $27,776 in medical

expenses, (2) $339 in State and local taxes, (3) $6,840 in real

estate tax, and (4) $400 in gifts to charity.

     Petitioner’s mother, Frances Field (Mrs. Field), paid

$24,559 directly to medical providers on account of petitioner’s

medical expenses and paid $5,508 directly to the city government

on account of petitioner’s real estate tax.      Petitioner was not a

minor, and Mrs. Field was not legally obligated to pay

petitioner’s expenses.

     On August 4, 2008, respondent issued to petitioner a notice

of deficiency in which respondent determined a deficiency of

$3,309 for tax year 2006.   Petitioner timely petitioned this

Court.




     1
      Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
year in issue.
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                              Discussion

I.    Burden of Proof

       Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving entitlement to any claimed

deductions.     Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503

U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934).

II.    Arguments of the Parties

       It is petitioner’s position that although Mrs. Field made

the payments directly to petitioner’s creditors, we should

consider them to have in substance passed from Mrs. Field to

petitioner and then to petitioner’s creditors; therefore

petitioner should be entitled to deduct the payments.

       Respondent contends that the form of the transaction should

apply and that because the money was paid directly from Mrs.

Field to petitioner’s creditors, petitioner may not claim the

deductions.

III.    Whether Petitioner May Deduct the Payments

       A.   The Medical Expenses

       Section 213(a) allows a deduction for unreimbursed expenses

paid during the taxable year for medical care of the taxpayer or

a dependent.
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     Respondent does not assert that Mrs. Field claimed the

medical expense deduction for the amounts paid for her daughter,

only that Mrs. Field paid the expenses and therefore petitioner

is not entitled to the deduction.

     There is precedent for State law controlling whether a gift

at the time of payment affects who is the payor.    See, e.g., Ruch

v. Commissioner, T.C. Memo. 1982-493, revd. on another issue 718

F.2d 719 (5th Cir. 1983).   Mrs. Field made the medical expense

payments for her daughter with donative intent.    Although Mrs.

Field and petitioner would not be subject to the gift tax,2 the

income tax treatment in this context is not controlled by the

gift tax consequence.   See Pierre v. Commissioner, 133 T.C. 24,

35 (2009).   Applying substance over form, we treat petitioner as



     2
      Sec. 2501(a)(1) provides that there shall be a tax on gifts
of property made by a donor. Sec. 2503(b) provides a limited
annual exclusion from the gift tax; for 2006 the first $12,000 in
gifts to each donee from a donor was not taxable.

     Sec. 2503(e)(1) and (2)(B) supplements the annual exclusion,
treating payments by a donor “to any person who provides medical
care * * * with respect to [a donee]” as qualified transfers.
Such qualified transfers are not subject to the gift tax and do
not count toward the annual exclusion. See sec. 2503(e)(1). In
order to take advantage of the medical care exclusion, the donor
must make the payment directly to the medical service provider
treating the donee. Sec. 25.2503-6(c), Example (4), Gift Tax
Regs.

     While most indirect gifts such as payments to a third party
on behalf of a donee are treated as gifts to the donee, qualified
transfers such as payments made directly to a medical care
provider are not treated as gifts to the donee for gift tax
purposes. Sec. 2503(e)(1); sec. 25.2511-1(c)(1), (h)(2) and (3),
Gift Tax Regs.
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having received from her mother a gift of $24,559 with which

petitioner paid her own medical expenses.     Petitioner should be

credited with having made the payments for purposes of the income

tax deduction in question.

       B.   The Real Estate Tax

       Section 164(a) provides that State and local real estate

taxes are deductible in the year paid or accrued.

       To provide background we will explain the gift tax

consequences.     The regulations identify indirect gifts, such as

payments made to a third party on behalf of a donee, as a

“transfer” to the donee.     Sec. 25.2511-1(a), (c)(1), (h)(2) and

(3), Gift Tax Regs.

       Mrs. Field paid $5,508 directly to the city government in

discharge of petitioner’s obligation for real estate tax.       Again

applying substance over form, we treat petitioner as having

received from her mother a gift of the $5,508 with which

petitioner paid the city in satisfaction of her own real estate

tax.    Thus petitioner is entitled to a deduction under section

164 for that amount.

       We note that there is no danger of a “double deduction”

arising from our decision on this issue.     See Rome I, Ltd. v.

Commissioner, 96 T.C. 697, 704 (1991) (“Double deductions are

impermissible * * * absent a clear declaration of intent of

Congress.”).     Because the real estate tax was imposed upon
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petitioner, she is the only taxpayer who may deduct it; Mrs.

Field may not.     See sec. 1.164-1(a), Income Tax Regs.

IV.   Conclusion

      For the reasons discussed hereinabove, we find that

petitioner may deduct the medical expenses paid and the real

estate tax in question.

      To reflect the foregoing and the resolution of other issues,


                                              Decision will be entered

                                         under Rule 155.
