An Information Letter issued by the IRS to Representative John Tanner (Dem.-Tenn.) states:
“The costs of buying, training, and maintaining a service animal to assist an individual with mental disabilities may qualify as medical care if the taxpayer can establish that the taxpayer is using the service animal primarily for medical care to alleviate a mental defect or illness and that the taxpayer would not have paid the expenses but for the disease or illness.” Letter of George Blaine, Associate Chief Counsel (Income Tax and Accounting) to Representative John Tanner, INFO 2010-0129 (May 11, 2010, released June 25).
Dr. Esnayra, the president of the Psychiatric Service Dog Society, and I had written to the IRS on July 17, 2009, concerning the deductibility of service dogs for individuals with mental health disabilities. Tax Notes, August 31, 2009. One of the people we had consulted with on the issue was Carling Dinkler, an aide to Representative Tanner. The Representative, Dr. Esnayra, and I were concerned with language from Publication 502, Medical and Dental Expenses, stating:
“You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually-impaired or hearing-impaired person, or a person with other physical disabilities.” (emphasis added). As of this writing, the online posting of Publication 502 retains the adjective “physical.”
The Information Letter does not define service animals for purposes of determining what expenses are deductible. Rather, the Letter refers to two Tax Court decisions that provide parameters that taxpayers must consider in advancing a deduction argument. The first case is Havey v. IRS, 12 TC 409 (1949), in which the taxpayers, a couple, sought to deduct their travel and room expenses at resorts and a dude ranch which were taken by the couple because of the wife’s heart problems. Citing the predecessors of the current Section 213 and its regulations, the court noted that deductible expenses must be incurred primarily for the prevention or alleviation of a physical or mental defect or illness. Personal, living, and family expenses, on the other hand, are not deductible. Thus, athletic club expenses would generally be considered personal or living expenses. The case states:
“In determining allowability, many factors must be considered. Consideration should be accorded the motive or purpose of the taxpayer, but such factor is not alone determinative. To accord it conclusive weight would make nugatory the prohibition against allowing personal, living, or family expenses. Thus also it is important to inquire as to the origin of the expense. Was it incurred at the direction or suggestion of a physician; did the treatment bear directly on the physical condition in question; did the treatment bear such a direct or proximate therapeutic relation to the bodily condition as to justify a reasonable belief the same would be efficacious; was the treatment so proximate in the time to the onset or recurrence of the disease or condition as to make one the true occasion of the other, thus eliminating expense incurred for general, as contrasted with some specific, physical improvement?”
Although a physician had advised the trips the taxpayers sought to deduct in Havey, the court noted that during the trips she was not under the care of a physician. The court did not question that the trips may have been beneficial, but the “record fails to show, however, that the benefit derived by the wife was in any respect different from that enjoyed by any vacationer at the same resorts at the same time.” The court said that a visit to a sanitarium might have received different treatment. Thus, an “incidental benefit is not enough.”
The second case cited in the Information Letter is Jacobs v. Commissioner, 62 TC 813 (1974), where the taxpayer sought to deduct legal fees under a property settlement in a divorce proceeding. The taxpayer’s psychiatrist recommended that he delay marriage plans to a woman to whom he was engaged so that he could resolve his doubts about the marriage. He married anyway, but instead of resolving themselves, the problems of the marriage worsened and the taxpayer began to take anti-depressants. The psychiatrist recommended that the taxpayer get a divorce. When the attorney the taxpayer hired seemed to be going too slow, the psychiatrist recommended that he change attorneys, which he did. On his 1959 return, the taxpayer deducted over $10,000 of expenses relating to the lump sum payment to his wife and the attorneys’ fees.
The Tax Court accepted that the taxpayer had a mental disease for which medical care was appropriate. The court noted that for personal expenses to be deductible, they must be claimed primarily for the prevention or alleviation of disease. The key sentence from the case that the Information Letter paraphrases reads as follows:
“One important condition, which petitioner must satisfy if his claim is to succeed, is whether the expenditure would have been made even if there had been no illness. This ‘but for’ test requires petitioner to prove both that the expenditures were an essential element of the treatment and that they would not have otherwise been incurred for nonmedical reasons.”
The court was not convinced that the taxpayer would have gotten divorced had he not been ill, despite the fact that he began to get better after the divorce:
“The marriage had not worked from the beginning. Petitioner detailed for us how his wife began to attach and abuse him almost immediately after the wedding. Even if petitioner had been emotionally sound, we believe he would have gotten a divorce, if not when he did, then shortly thereafter. Moreover, there is absolutely no evidence that petitioner's wife would not have at some point initiated and procured a divorce. In short, we cannot say that petitioner would not have in any event incurred the expenditures in question.”
Thus, the divorce-related expenses were not deductible. The analogies of the cases to the use of a service dog are clear, though their application may not always be simple. The expense of a dog must be made primarily for the prevention or alleviation of the disease, and the taxpayer must be prepared to show that these expenses would not have been made but for the disease.
The model is easy to apply when considering a guide dog, or a mobility impairment dog, or a dog trained to work with a veteran with PTSD. A medical need is easily established, and the highly expensive training for an appropriate animal would not be undertaken were it not for the way the dog alleviates a condition. In a case like a seizure-alert dog, where a pet spontaneously begins to alert to a handler’s seizures, nothing would appear deductible except subsequent training to enhance this skill. The dog was already a pet and would presumably have been fed and cared for in any case. With an autism service dog, working in a family with an autistic child, the circumstances around the acquisition of the dog might be critical to justifying a deduction.
This is a significant development for the service animal community, and the IRS is to be commended for providing this information to Representative Tanner. Representative Tanner must be thanked as well, and deserves to be considered a new hero of service animal users.
At a panel discussion of the Low Income Taxpayers Committee of the American Bar Association Tax Section in May 2010, I argued that there may be instances, such as with a seizure-alert dog, or a dog that alerts an individual to a substance to which the individual is dangerously allergic, where the all-or-nothing approach to deductibility of service animals may not be appropriate. Even if the animal was obtained primarily for the medical condition, and would not have been obtained but for that condition, the fact is that even a service animal has some of the same companionship needs, as does the handler, that would apply to a pet. As has been true of the Departments of Justice and Transportation, the proliferation of service animal types will likely lead to new issues that require additional nuance in the application of the tax law to taxpayers having these animals.
Addendum in Response to an Email. A reader of this blog asked me to elaborate on a situation where full deduction of a service dog's expenses might not be appropriate. A situation on which I consulted (not on any tax issue) comes to mind. A family acquired a service dog to work with their autistic child. The dog was trained to keep the child from running into traffic and to stop certain behaviors the child sometimes engaged in (such as pica, compulsive eating of non-food items such as soaps and feces), and to bark if the child awoke in the night. The relationship between the child and the dog quickly deteriorated. The child did not sleep well and the parents began to let the dog sleep with themselves or another sibling of the autistic child. The dog shied away from the child in the schoolroom and the school soon advised the parents that they would have to have someone in the school with the dog if it was to continue to come to the school with the child. Soon the only function that the service dog performed for the child on a regular basis was to walk to and from the school with the child and the mother, when it could keep the child from running away.
I do not know precisely how the IRS would view this situation. The dog was highly trained and cost nearly $20,000. (So I was told. My advice was sought by the school, not the family.) The dog would not have been acquired but for the services it was to perform for the autistic child. The acquisition and initial maintenance costs would appear to fit within the parameters of the Information Letter. But after a time, was the dog being used primarily to alleviate a mental defect or illness? Perhaps not. On the other hand, hearing dogs, which have been approved by the IRS (Rev. Rul. 68-295, 1968 2 CB 92), often only signal the presence of a particular sound a few times during a day, though they are available for this work throughout the day. Seizure-alert dogs may not alert to an oncoming seizure for months, though they also are available for their detection ability all the time they are near their handlers. Or would the IRS view this as analogous to a guide dog that goes out of service and becomes a pet when the blind person gets a younger animal? These sorts of issues may take some while to arise, but the Service will have to consider them sooner or later.
Second Addendum in Response to an Email. Another reader of the blog asks if an emotional support animal would be deductible under IRS pronouncements. I’m not sure. The Service does not define “service animal,” “psychiatric service animal,” or “emotional support animal.” Rather, the Information Letter states that if the taxpayer uses the service animal “primarily for medical care to alleviate a mental defect or illness,” and would not have paid the expenses but for the disease or illness, the costs of buying, training, and maintaining the animal “may qualify as medical care,” i.e., may be deductible. Nor does the Service define what it means to “assist” an individual with mental health disabilities.
It is certainly possible that someone with an animal that might be designated an emotional support animal by the Department of Justice or the Department of Transportation could allege that they acquired the animal primarily to alleviate a mental illness and would not have done so but for the illness. Although training is mentioned as a deductible expense, the Service does not specify that the animal must be trained. The Department of Transportation, in recent cruise line access rules, stated that an emotional support animal is “not trained to perform specific physical tasks.” This follows statements in the final air carrier access rules that emotional support animals need not have specific training for their emotional support function, but must be trained to behave appropriately in a public setting.
The Department of Justice, in rules proposed in 2008, indicated that psychiatric service animals, unlike emotional support animals, are “trained to do work or perform tasks.” The distinction between doing work and performing tasks received the following elaboration in those proposed rules:
“[T]he phrase ‘do work’ is slightly broader than ‘perform tasks,’ and adds meaning to the definition. For example, a psychiatric service dog can help some individuals with dissociative identity disorder to remain grounded in time or place. As one service dog user stated, in some cases “critical forms of assistance can’t be construed as physical tasks,” noting that the manifestations of ‘brain-based disabilities,’ such as psychiatric disorders and autism, are as varied as their physical counterparts.” 73 Fed. Reg. 34521.
It would appear that a psychiatric service animal, as described by the Department of Justice, could fit cleanly within the parameters set by the IRS for deductibility of service animals. I suspect that the IRS would be reluctant to treat an untrained emotional support animal in the same way, even if the taxpayer using the animal has a mental defect or illness. Although training is not required under the Service’s parameters, on audit an IRS agent might become concerned that an animal behaving like a pet without any real training related to the taxpayer’s mental illness is, in fact, a pet. It might be hard to argue that a taxpayer is using a pet primarily to alleviate a mental defect or illness.
Also, although the Service does not define “service animal,” it does use the term and might be inclined to look to the Department of Justice, which has considered the significance of these animals for a much longer time, and in much greater depth, than it has. Even though the Department of Transportation includes emotional support animals as a type of service animal (at least in air carrier access rules), such a broad definition of the term might include too many animals that are not sufficiently devoted to service work to justify a deduction. (The IRS might not follow the Department of Justice in restricting service animal status to dogs. In PLR 8033038, 1980 WL 134273, the agency allowed a medical expense for a cat that was "registered with your animal control division as a hearing aid animal." According to the private ruling, the cat was "trained to respond to unusual sounds in an instantaneous and directional manner." This alerted the cat's owner to possible dangers. The ruling analogizes this situation to that described in Rev. Rul. 68-295, which also involved an individual with a hearing impairment.)
On balance, and without being presented with specific facts, I would guess that a taxpayer with an emotional support animal might find it difficult to get the IRS to accept a deduction for such an animal.
Third Addendum in Response to a Phone Call. Perhaps it is because I have spent most of my professional career as a tax lawyer that I receive more comments on tax issues involving service animals than any other type of posting. I got a call from someone who identified herself as an IRS agent asking how she could recognize a taxpayer claiming to have a psychiatric service animal that was really only a pet. Dr. Esnayra and I discussed the verification procedures the IRS might use in such cases in the paper linked to above. We noted that the IRS is in a situation closer to that of the Department of Housing and Urban Development than of the Departments of Justice and Transportation. The latter often involve situations where a public accommodation or an airline must decide, in a very public setting, whether someone’s dog is actually a service dog. The rules of these agencies recognize that an employee’s questions from behind a counter or at the entrance to a restaurant could be intrusive and embarrassing. HUD, however, is often dealing with how a building can verify assistance animal status for someone who has submitted application documents for an apartment. The inquiry can be conducted privately. With the IRS, I think an auditing agent should ask to see any letter from a medical or mental health professional recommending the acquisition of a service animal. The agent may want to get the taxpayer’s permission to speak with the writer of the letter to determine if the professional really stands behind the recommendation. (See my blog of July 6 on a “psychiatric service macaque” where a doctor seems to have written a letter under pressure from the patient, but did not know what psychiatric service animals are supposed to do, or even how service animals are defined.) If the taxpayer presents a certification card for the animal, the agent should verify that the card was issued by a legitimate organization. As Dr. Esnayra and I noted, there are now websites that will sell service animal paraphernalia for several hundred dollars. This may be fraudulent under the laws of some states, but it is occurring and the purchasers may not just be people wanting to take their dogs on vacations. The tax benefits of a service animal can be much greater than having a dependent.
The IRS is certainly familiar with the fact that just because someone says a dog is certified doesn't mean that it has really passed any tests. The agency acquired explosives detection dogs for its Fresno Service Center which were eventually found incapable of detecting much of anything. The vendor was convicted of fraud for selling such dogs to the State Department, the Federal Reserve Bank, and the IRS, and sentenced to 63 months in prison. Presumably some of his business deductions for training the dogs might have gotten a second look. U.S. v. Ebersole, 411 F.3d 517, cert. denied, 126 S.Ct. 1142 (2006), on remand, 2007 WL 219969 (E.D. Va. 2007), aff’d, 189 Fed.Appx. 287 (4th Cir. 2006), motion to vacate denied, 2007 WL 750198 (E.D. Va. 2007).