What happens when one person has a deductible expense, and someone else pays it? Suppose, for example, a mother covers medical expenses and real estate tax for her daughter. That’s what happened in a recent Tax Court case (Lang) (PDF).
The expenses were incurred by the daughter, so the mother could not claim the deductions. (The daughter was an adult and the mother had no obligation to provide support.) Instead, the daughter claimed the deductions, and the IRS disallowed them. Their position was that you can’t deduct an expense if you didn’t pay it: the mother paid the expenses so the daughter can’t deduct them.
The Tax Court disagreed. It found that the mother’s payment of the expenses was done with donative intent, so the substance of the transaction is the same as a cash gift followed by payment of the expenses. The court allowed the deductions.
In a similar situation, you would be wise to avoid this issue by making a cash gift to the person who incurred the expenses, so that person can make the deductible payment. On the other hand, the Tax Court’s ruling in this case indicates you don’t necessarily have to forgo the deduction if you failed to take that step.
The link to the Tax Court case is broken.
Can someone provide the name of the case perhaps? That way if the link ever breaks again, at least it would be possible to search for it.
Thanks.
Fixed it. Something we hadn’t realized: the Tax Court website provides one link for a case when it’s listed in Today’s Cases and a different one when it’s no longer in that category.
Just shows you the IRS is just as intent to cheat tax payers as tax payers
cheat the IRS. No logical reason to deny this deduction and waste the courts time.
Common sense should rule.