By Michael J. Sacopulos, JD
Tax time is just around the corner, and your patients may be asking if they can deduct their cosmetic
But can they, or are your patients pushing the envelope and risking an audit?
A limited number of patients have successfully deducted plastic surgery procedures. The argument can be made that improvement in physical appearance could be beneficial to a model or news anchor. However, these arguments have been largely rejected by the Internal Revenue Service and by the courts as being too personal in nature and benefitting the taxpayer. Cosmetic surgery is typically treated as a nondeductible expense.
The most famous example is the “Chesty Love” case, also known as Hess v Commissioner. In this case, the taxpayer was an exotic dancer who underwent drastic breast augmentation surgery. The Court noted that the augmentation was to such an extreme degree (size 56N) that her breasts were essentially “stage props.” Further, the augmentation was solely to benefit her career, and thus a write-off.
New Jersey CPA Gail Rosen says the “Chesty Love” case proved that you must satisfy two conditions to deduct cosmetic surgery. For starters, it must be required as a condition of employment. “Chesty Love” proved that her income and career earnings increased with her augmented breasts. And No. 2 is that the addition or enhancement is unsuitable for everyday use. “Chesty Love”’s extremely large breasts were unsuitable for everyday use, and she was going to have them reduced as soon as her exotic dancing career ended.
“Being in business as long as we have, clients have asked about deducting various cosmetic surgery procedures,” Rosen says. “To deduct cosmetic surgery, they must pass the above two tests. When we tell them why their cosmetic surgery is not deductible based on the tax law, none of them have pushed any further.”
Before you give tax advice to patients, understand what the IRS labels as a deduction. Former US Tax Code attorney-advisor Jared R. Callister with California’s Fishman, Larsen, Goldring & Zeitler gives Plastic Surgery Practice readers a rundown of the current rules on the deductibility of cosmetic surgeries.
Medically Necessary Versus Elective?
In the context of cosmetic surgery, the question does not really turn on the distinction between being a medical necessity or being an elective procedure. A different test applies. Under the Internal Revenue Code (“the Code”), a partial deduction is allowed for the expenses paid by a taxpayer for “medical care.”
However, the Code explicitly excludes cosmetic surgery from falling under the definition of medical care unless the surgery is one which can generally be considered corrective. The Code defines “cosmetic surgery” as a procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. For a procedure to be deductible, it must be necessary to ameliorate a deformity arising from or directly related to i) a congenital abnormality, ii) personal injury, or iii) a disfiguring disease.
“Thus, when a woman undergoes breast reconstructive surgery following a mastectomy, the reconstructive surgery, although cosmetic and elective, would be a deductible medical expense. However, a breast augmentation to simply improve one’s appearance would not be deductible,” Callister explains.
In addition, Callister says that there is precedent for deducting the costs of skin removal. Thus, when a patient loses a significant amount of weight, loose-hanging excess skin can be removed and be considered deductible if the skin mass interferes with the patient’s daily life or is prone to infection and disease. Again, as with most things, the exact facts and circumstances factor into this decision.
Is Sex Change Surgery a Write-off?
In the case O’Donnabhain v
Commissioner, the taxpayer underwent hormone therapy, sex reassignment surgery, and received a breast augmentation, and attempted to deduct those expenses. The taxpayer argued that the procedures were necessary to treat a disease (specifically, gender identify disorder) and should not be considered standard cosmetic surgery.
Based on an analysis of various medical experts, the Tax Court ruled that gender identity disorder is a “disease” and that the hormone therapy and sex reassignment surgery were for the treatment of said disease. The Court placed great weight on the fact that the taxpayer’s physicians followed the Benjamin Standards of Care protocols in exacting detail before the procedures were implemented. The Court, however, denied the deduction for the taxpayer’s breast augmentation on the grounds that the taxpayer failed to demonstrate how such a procedure was to treat the disease as opposed to a typical cosmetic procedure meant to improve one’s appearance.
The O’Donnabhain case is the exception, not the rule, when it comes to attempting to deduct what one would generally be considered aesthetic surgery.
Don’t Give Tax Advice
The big question is whether the procedure is “cosmetic” or “corrective.” If a physician makes the determination that a “corrective” procedure should be done, then that decision should be documented in the patient’s chart. Do not be surprised if your patient wants such documentation to support the deduction.
For the IRS, documentation is everything, and creating a paper trail can be extremely beneficial down the road if there is an audit. Providing the patient with contemporaneous written documentation as to the reasons for the procedure will go a long way in helping the IRS reach the correct determination.
Do not attempt to offer tax advice to your patients. You can be helpful to them by providing documentation. If you have a patient question about the deductibility of a procedure, instruct them
to seek the advice of a competent tax adviser. n
|Michael J. Sacopulos, JD, is the CEO of Medical Risk Institute (MRI) and serves as general counsel for Medical Justice Services. Additionally, he is the legal analyst for several national publications, including Plastic Surgery Practice. He may be reached via PSPeditor@allied360.com.|