Discussion:Business expense or employee expense?

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Discussion Forum Index --> Advanced Tax Questions --> Business expense or employee expense?


Discussion Forum Index --> Tax Questions --> Business expense or employee expense?

Ehirrold (talk|edits) said:

28 December 2010
Single shareholder S-Corp does "Medical Legal Consulting". The single shareholder is an RN. To maintain the RN license (RN license is required to do Medical Legal Consulting) the shareholder is required by the Board of Nursing to complete a three year CANDO (Chemically Addicted Nurses Diversion Option) program for alcohol. Are the related expenses business (necessary to maintain a RN designation), or are they personal medical expenses? The expenses consist of regular travel to AA meetings and drug screening.

I would like to hear some opinions regarding this.

94nole (talk|edits) said:

28 December 2010
A requirement for RN licensing?...meaning all RNs in the state are required to complete 3 year CANDO? Or is 3 year CANDO a requirement to do Medical Legal Consulting?

Jctmstx (talk|edits) said:

28 December 2010
No. This is disciplinary. They are usually referred by someone such as an employer or even themselves. If they don't complete the program the license is revoked.

Nightsnorkeler (talk|edits) said:

28 December 2010
Seems to me that this would be silimar to a truck driver with a DUI needing to go through a program to keep his driver's license. The program is not required to maintain the license, it is is a consequence of the individuals actions.

DaveFogel (talk|edits) said:

28 December 2010
There have been several instances in which the issue of whether a particular expense is deductible as a business expense or as a medical expense has come up, but none of these instances are even close to the situation you described (where an RN was required by the Board of Nursing to participate in a chemical addiction program to take care of a chemical addiction problem as a prerequisite to renewal of the RN license).

In Revenue Ruling 57-461, 1957-2 C.B. 116, the cost of a seeing-eye dog used both for work and outside of work was not deductible as a business expense. In Rev. Rul. 71-45, 1971-1 C.B. 51, a professional singer was not allowed to deduct, as a business expense, the cost of frequent throat treatments by a medical specialist. Although the treatments were required by his professional engagements in order to maintain high vocal standards, the primary motivation for the treatments was personal. In Rev. Rul. 58-382, 1958-2 C.B. 59, a pilot was allowed to deduct routine medical examinations in order to maintain his license as a pilot. Failure to secure a current medical certification would have resulted in termination of his employment. But any additional medical expenses to maintain his fitness were not deductible as business expenses.

In Rev. Rul. 75-316, 1975-2 C.B. 54, the IRS ruled that payments made by blind employees to readers for services performed in connection with the conduct of the blind employees' work were deductible as business expenses under IRC §162 and not as medical expenses under IRC §213. There is language in this ruling that may be helpful:

"Where it is questionable whether an expense is deductible as a business expense rather than as a medical expense, such expense may be deducted as a business expense under section 162 of the Code if all three of the following elements are present: (1) the nature of the taxpayer's work clearly requires that he incur a particular expense to satisfactorily perform such work, (2) the goods or services purchased by such expense are clearly not required or used, other than incidentally, in the conduct of the individual's personal activities, and (3) the Code and regulations are otherwise silent as to the treatment of such expense."

I recommend that you apply these three factors to your client's situation.

Ehirrold (talk|edits) said:

28 December 2010
The CANDO program is pretty common in Arizona. When the requirement is triggered (DUI, etc.) the nurse must stay current thru completion in order to keep the RN designation.

Jctmstx (talk|edits) said:

28 December 2010
If this treatment was under the direction of medical rehabilitation program it would certainly qualify as personal medical expenses. I was reviewing a discussion we had at great length about legal fees involved a DUI case that theoretically was connected to work. Some thought is was business related and some thought it was'nt. I don't think it meets the ordinary and necessary standard.

Death&Taxes (talk|edits) said:

28 December 2010
I wonder if you could use the reasoning that permits psychiatrists, psychologists and clincal social workers to deduct analysis as a business expense. I recall using Voigt, Harry, (1980) 74 TC 82 as an example in an audit and though the Service had not acquiesced with this decision, they also did not want to refight it in this case which went to Appeals.

Now we find Publication 970 "While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. The program will lead to qualifying you to practice psychoanalysis. The psychoanalytic training does not qualify you for a new profession. It is qualifying work-related education because it maintains or improves skills required in your present profession."

We can see how 50 years ago courts thought differently

http://bulk.resource.org/courts.gov/c/F2/288/288.F2d.648.8126_1.html

And this one reverses the first: http://bulk.resource.org/courts.gov/c/F2/367/367.F2d.663.6751.html

CrowJD (talk|edits) said:

28 December 2010
"In Revenue Ruling 57-461, 1957-2 C.B. 116, the cost of a seeing-eye dog used both for work and outside of work was not deductible as a business expense"

If she's drinking, she can't see straight. I think your client got nailed by this Rev. Ruling. No deduction.

(However, if she did most of her drinking on the job, it could be arguable.)

Ehirrold (talk|edits) said:

28 December 2010
The program was not ordered by the court, it's a disciplinary action by the medical board that allows the individual to retain an RN license. In my opinion the program is only incidentally useful to day to day personal activities. It is however required to maintain the RN license. Based on RR 58-382 and RR 75-316 it looks like it should qualify under 162.

DaveFogel (talk|edits) said:

28 December 2010
If the individual would not be required to complete the CANDO program but for the DUI or the individual's alcohol problem, then the program is not incidental in the conduct of the individual's personal activities. Rather, it's the primary purpose, so in that case, I would vote for no deduction.

KathiJud (talk|edits) said:

29 December 2010
I also vote for not a business deduction.

LemRI (talk|edits) said:

December 29, 2010
The disciplinary action from the medical board was prompted as a consequence of her personal activities (namely drinking). Sure, it's required to maintain the RN, but I don't see a parallel to RR 58-382 and 75-316.

In RR 55-382, a medical examination is a requirement to maintain the pilot's license (every pilot must have this). This, to me, is an ordinary and necessary business expense.

In RR 75-316, the blind employee would need a reader for his/her employee due to the inherent limitation based on their disability. Alcoholism may be a mental disability, but this program isn't for their disability. Treatment may be deductible (personal medical) if it was a rehabilitation facility.

It seems to me that the purpose of this program was to be disciplinary in nature, and I don't believe would be deductible.

Fr. Mackelhenry (talk|edits) said:

29 December 2010
Why argue from a point you're going to lose?

Don't argue from the point of drinking, but from the point of seeing.

She drank on the job and she couldn't see straight.

The law says if you need a dog to see ON THE JOB it's a business expense. If she wants to see (she's got to look at X-rays and medical recrods) she must stop drinking.

I see no difference between this CANDO program and the guide dog for work. It's deductible if she drank at work. If she mainly drank herself silly at home, it's not deductible.

She needs to get affidavits from friends and other evidence showing when she did her drinking (she may not remember herself).

She was diciplined by the medical board. This leads me to think some incident happened at work. She picked up the wrong syringe and gave the patient the wrong medicine. OR She performed a gynocological exam on a male. Review the records.

Whatever it was, it's clear she was not seeing well on the job and this led to her discipline. A clever lawyer might refer to this as some sort of "chemically induced blindness".

LH2004 (talk|edits) said:

December 29, 2010
Much too much off-the-job impact to be deductible as a business expense, if you ask me.

I don't think we can get to an answer from the fact that it's disciplinary: I wouldn't think the answer would be different if you had an ordinary citizen who was a fully law-abiding drunk and had to get cleaned up to enter a licensed profession (other than the entering-a-new-profession aspect).

TexCPA (talk|edits) said:

29 December 2010
Ehirrold - you stated "it's a disciplinary action by the medical board that allows the individual to retain an RN license",this may be incorrect.

Based on this website [1] "CANDO is the Board of Nursing's non-disciplinary, confidential monitoring program for chemically dependent nurses, who meet the eligibility/admission criteria into CANDO, and who voluntarily enter into the program."

see also [http://www.azbn.gov/documents/cando/CANDO-FREQUENTLY- ASKED-QUES-REVISED%203-2009.pdf]

I agree with Dave - "I recommend that you apply these three factors to your client's situation"

If not but for.... an ordinary expense does not necessarily mean frequent.

TexCPA 16:56, 29 December 2010 (UTC)

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