work related injury

[oceanlovin'ea]

I had a new client come to my office last night. She is a massage therapist. In working on a client she received an injury which prevented her from working for a period of time. She had to get treatments on her hands and wrists so that she could work again.

They asked if those treatments would be considered an expense of the business. Normally any medical would go on a schedule A medical expense.

But I thought this was an intriguing question and I would ask the opinion of my fellow experts to see what you all think.

Thanks.

Linda, EA

[New York Enrolled Agent]

I had a new client come to my office last night. She is a massage therapist. In working on a client she received an injury which prevented her from working for a period of time. She had to get treatments on her hands and wrists so that she could work again.

They asked if those treatments would be considered an expense of the business. Normally any medical would go on a schedule A medical expense.

But I thought this was an intriguing question and I would ask the opinion of my fellow experts to see what you all think.

IMO not an ordinary & necessary §162 deduction.

Look at Rev Ruling 71-45 where a professional singer wanted to deduct treatments for his throat as a §162 deduction. A snip follows:

[start]It is held, in the instant case, that the amounts expended by the taxpayer for treatment of his throat are personal in nature and are not ordinary and necessary business expenses within the meaning of section 162 of the Code.

However, the amounts expended by the taxpayer to secure medical aid for the purpose of maintaining the vocal standards required by his singing engagements are deductible as medical expenses within the limitations of section 213 of the Code.[end]

You might also look at Rev Ruling 57-461 where the use of a seeing-eye dog by a taxpayer was not allowed as a §162 deduction either.

[BOB W]

If they had Workman's comp I'm sure it would be covered. Thus, meaning it is work related, maybe, depending on the reason for the ailment. Just because her hands have a problem, it may or may not have been caused by her work. It could of been a serious error going into that business with "faulty" hands in the first place. An evaluation needs to be made on the cause..

[oceanlovin'ea]

I think something specific happened during a session with a patient so it was not just a casualty of the trade.

But I appreciate New York Enrolled Agent's post. I am glad to have something to back up what I say back to them.

Linda, EA

[erchess]

Rarely do I disagree with NYEA

but Linda is under the impression that her client damaged her hands in a work related incident. That would seem to me to differentiate between her case and those of the revenue rulings. If this client sustained costs in repairing that damage and for whatever reason was not itemizing her medical deductions I would claim them as a business expense. Bob raises the possibility that they could have been paid by workman's comp but at least in NC small firms are not required to carry that protection if they advise employees of the lack. And if a worker at such a firm is hurt the courts will not let him or her go after the employer.

I think I would ask the doctor to write out for me that the injuries were sustained at work and in detail how they were sustained.

[Davc]

Agree with NY EA.

[Koss]

Business Expense?

The original post does not explicitly say this, but we all seem to be assuming that the massage therapist's business is a sole proprietorship. If this is the case, then the therapist is the business. The boundary between the individual and the business entity is, to say the least, somewhat fuzzy.

What if it's not a sole prop?

Suppose, for example, that the business is a single-member LLC that is an S corp for tax purposes. Suppose, further, just for fun, that the sole member of the LLC is not a massage therapist. The business owner is a retired chiropractor who operates a massage clinic, and has one massage therapist working there as an independent contractor. No health insurance, and no workers' comp. The massage therapist is a true independent contractor, who also works at other massage clinics.

Hold all other variables constant. The therapist suffers an injury while performing a massage at the clinic operated by the retired chiropractor. The business owner decides that the business--the LLC which is an S corp--will pay for treatment of the therapist's injury.

Does anyone think this is not a deductible business expense on the 1120S filed by the LLC?

If this is a deductible business expense, then why would it be different for a sole prop? Even in the case of a sole prop, the business owner and the injured independent contractor could easily be two different individuals.

But on Linda's fact pattern, the business owner and the injured worker are one person.

Why does this fact change the nature of the expense?

BMK

[Koss]

Assumptions?

As I re-read Linda's original post, it's not at all clear to me whether her client is an employee or an independent contractor.

The same question arises with respect to the cases cited by NYEA. Were these taxpayers employees, or were they self-employed?

Is Linda's client trying to deduct the cost of medical treatment on Schedule C?

Or on Schedule A as an employee business expense, in order to avoid the 7.5% floor for medical expenses?

Does it matter?

IRC 162 deals with trade or business expenses. It appears to be applicable to employees, self-employed individuals, and corporations.

BMK

[Koss]

Further thoughts

What about the celebrated case of the x-rated film star who took a deduction for breast enhancement surgery?

No, really. It's in The Tax Book.

Much of the argument in that case revolved around whether the surgery was cosmetic, and therefore disallowed under the rules for medical expense deductions.

Of course it was cosmetic. It certainly wasn't medically necessary. The surgery wasn't performed to treat a disease or disorder, or to correct a deformity.

But that's irrelevant. The Tax Court allowed it as a business expense.

From the lesser to the greater...

If surgery that was not medically necessary can be a deductible business expense, then how much more so is it the case that medical treatment that is medically necessary can be a deductible business expense, based on the facts and circumstances.

BMK

[Kram BergGold]

Gray area

Physicals required by the employer are deductible as a business expense, TTB page 4-24. So sometimes medical expenses are allowed to be claimed as a business expense just like the breast augmentation in a previous post. You just have to make the call whether this expense is ordinary and necessary and not personal in nature. Like glasses are personal in nature so never allowed as a business expense. I would go for it.

[New York Enrolled Agent]

Physicals required by the employer are deductible as a business expense, TTB page 4-24. So sometimes medical expenses are allowed to be claimed as a business expense just like the breast augmentation in a previous post.

2 comments

#1 No one disputes the ability to deduct a routine physical - even the IRS agrees in a 1958 Revenue Ruling. But continue reading.

Held, under the circumstances in the instant case, the cost to an employee of securing periodic, routine, physical examinations sufficient to establish his physical fitness to retain his position may be deducted as ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954. However, any additional expenses incurred by an employee for the purpose of securing medical aid or physical correction required to enable him to maintain the physical fitness necessary to retain his position may not be claimed as a business expense, but only as a medical expense deduction within the limitations of section 213 of the Code

#2 Forget the Chesty Love case. It was a TCS case - cannot be used as precedent - see if anyone can find it to read it.
It is so unique that to suggest this is tax law available to others defies logic. Chesty went to a 56FF - Judge Pate (a female judge) said she was so ridiculously large that there could be no personal aspect to the enhancement and it was truly only for business purposes. If someone can find any other case with a postive result for the taxpayer who had a "normal" enhancement, I would appreciate the cite.

[Koss]

Medical Expense

I agree that the Chesty Love case is not on point.

And the revenue ruling you cited is pretty clear. But the language expressly refers to employees. And I think the taxpayer in the original post is self-employed.

With that being said, I also acknowledged earlier in this thread that IRC 162 appears to have scope over employees and self-employed taxpayers. Nevertheless, I'm not convinced that the specific revenue ruling you cited resolves the question when it comes to a self-employed taxpayer.

What about the scenario I presented earlier in this thread, involving an S corp paying for the treatment of an independent contractor injured while performing services?

Assume for the sake of argument, in this example, that it is undisputed that the S corp has no obligation to pay for such treatment, i.e., the S corp is not liable for the injury sustained by the independent contractor.

But the therapist got hurt on the job, and cannot work until she is treated and recovers from the injury. The S corp has an established clientele that likes this therapist. The longer she is unable to work for the S corp, the more likely it is that the established clients of the clinic will go elsewhere. The clinic may temporarily hire another therapist, so that they are not out of business altogether. But clients want the injured therapist, not someone else. If they have to get a new therapist, they're going to shop around.

This isn't a speculative fantasy. Many chiropractors have only one or two massage therapists that work in their offices. And massage therapy is an art, not a science. Everything I just described is real life. I have a client who is a massage therapist, and I get a therapeutic massage myself about every two weeks.

NYEA-- Would you concede that in this scenario, if the S corp decides to pay for the therapist's treatment, in order to get her back to work as soon as possible, that this is an ordinary and necessary business expense on the 1120S?

If so, then what happens if the massage therapist herself is the sole shareholder of the S corp? Is it still deductible on the 1120S? If not, why?

And if it is still deductible, then why not on a Schedule C, by all the same reasoning?

BMK

[New York Enrolled Agent]

NYEA-- Would you concede that in this scenario, if the S corp decides to pay for the therapist's treatment, in order to get her back to work as soon as possible, that this is an ordinary and necessary business expense on the 1120S?

I presume that the S-corp (which you say has no obligation to pay anything) would then report the payments as compensation to the therapist. If that's the case, then I think you would be able to take a business expense.

[oceanlovin'ea]

Sorry not to get back to answer your questions earlier. I'm in the process of changing computers.

Yes, the client is a sole proprietor, not an LLC or s corporation. She works for herself and by herself. She doesn't have worker's comp insurance. I don't think it is required in the state of Florida for massage therapists.

Koss, I would disagree with you about it not being a science. A therapeutic massage therapist must learn in detail about the muscles and the structure of the body. Their hands are trained to "feel" the muscle and its texture. My massage therapist asked me a couple of months ago if I had fibromyalgia. I told her I really didn't know. She said that my muscles have the knots on them that people with fibromyalgia have on their muscles. But that is a side point to the real question here.

Linda, EA

[erchess]

Ordinary and Necessary

I find myself rethinking this case. Clearly the medical treatment was necessary for the work but I can see where an auditor might argue that a massage therapist injuring her hand on the job is not ordinary. To be ordinary as I understand it the expense would in this case need to be common among massage therapists. Still, I think the case is at least worth consulting the treating doctor about.

As for the cite NYEA asked for, there was a tax court case in the 50s, Commissioner of Internal Revenue v Mysti Delite (not sure about the spelling of her name). The taxpayer was an exotic dancer who was allowed to deduct as Sch C Business Expenses the costs of breast augmentation surgery which the court described as "grotesque". The court was shown still pictures of Ms Delite dressed as she did to perform but for some reason these were left out of the record. The court was particularly convinced by the fact that her income substantially increased after the surgery and by her testimony that the enhancements had led her to need medical treatment for lower back pain (not sure if she could deduct that as a business expense) and that she intended to have the procedure reversed when she retired.

The Delite case in my opinion is not on point with Linda's case and I mention it only because NYEA asked.

EDIT
Oooops I misread NYEA's post. I agree that I don't know of any case where anyone was able to claim "normal" cosmetic surgery as a business expense.