Sch A Medical Expense Audit

[KBTS]

Client is being audited for medical expenses claimed on 2007 return. They provided copies of canceled checks for all items being claimed. Spoke to IRS representative and they are denying all expenses stating that "canceled checks are not enough and they need the actual bills." This will be a huge headache to try and find all the original bills or get replacements from the doctors, dentist, etc. Anyone have success arguing that the canceled checks should be sufficient to substantiate the expenses? Thanks for the help.

[JohnH]

What about focusing on obtaining the bills and payment statements for the largest expenses? It stand to reason that if a bill from a given provider is valid, then other charges on the statement would be valid medical expenses even if each indicidual bill can't be located. Also, by working top-down, you may find for example that out of 50 bills, only a dozen or so would comprise 80-90% of the total amount claimed. It then becomes a matter of deciding if it's worth trying to obtain the remaining 38 or is it better to concede the 10-20% of the deduction. There's a bit of a trade-off here between the amount of work required and the eventual results.

In any event, I doubt you're going to achieve any progress without at least making an effort to produce some documentation to back up the checks.

[KBTS]

There are a handful of bills that comprise most of the expenses, so I was planning on focusing on those. I was not going to spend much time on all the $25 co-pays figuring they are pretty obvious and even if denied, they do not add up to much on the big picture. I was just hoping to minimize the stress for my client - they are really great people who don't need this hassle.

[New York Enrolled Agent]

. Anyone have success arguing that the canceled checks should be sufficient to substantiate the expenses? Thanks for the help.

Taxpayer has a cosmetic face lift - Suppose the cost = $9K with a check to Doctor X for $9K. You have a cancelled check but do you have a deduction under §213? Of course not.

So now I ask you - are cancelled checks sufficient to claim a §213 deduction? I think you need to find those handful of bills.

[Snaggletooth]

Receipts

You need receipts. The auditors' position is not unusual, but rather typical, and he is not forced to accept cancelled checks.

Substantiation is the key word, and to an extent it may depend on how miserable this auditor wants to be. $25 co-pays should be obvious enough to establish cost if on a repetitive and timely intervals, and if I were an auditor I would accept them. Especially if you get a statement showing credit for the co-payment and it matches one of the checks.

Another possible help would be a medical procedure going from A to B to C, and you just happen to be missing the receipt for B, but you have A and C.

Substantiation is the key word. If not receipts or statements, best substantiation can occur.

[S T]

I have been working

On a similar situation, but mine is reverse, I have copies of bills and statements with detail from the doctors and/or hospitals, lab xray, clinics, but am missing some canceled checks, however, I do have Visa/MasterCard receipts.

I now am noticing that clients having actual "bank records" and "canceled checks" are very fast disappearing. My taxpayer has already had to order "copies" from the bank as they were not supplied in the regular bank statements.

The other issue that I am running into is that Visa/Mastercard Credit card charge receipts are "VERY FAST" fading due to being printed on that special type paper.

So I really don't know where this is going to lead us for "audit purposes" in the future

I do believe that the taxpayer client can obtain a "ledger" from the Doctors Office/Hospital?maybe Lab-Xray/ and I defintely know they can obtain a printout from the Pharmacy, Might take a few days, but I do believe it is a simple matter for most of the "Medical Providers" to furnish an annual ledger - most all is computerized.
(I deal with those reports every year).

So in my case, I hope the auditor is not going to ask for "proof of payment" as it is stated on the receipt from the Medical Provider.

Mine is "only" a State Audit - Not an IRS Audit

Good Luck!

Sandy

[S T]

Just for reference

Good News Today (But I will feel better once I have the formal "No Change" in Hand)

State Auditor called and accepted "medical receipts" even though I could not supply all canceled checks.

"No Change" Audit

I believe IRS has a "higher standard" than States - but as posted in all the prior posts, you will need the Actual Receipts as well as payments. Most Medical and RX show amounts paid.

Sandy