Example Case:
Ozzie and Sherrie Johnson lived in Bishop, California. The Johnson’s 15 year old son, Jack, suffered from
illegal drug addiction and experienced both physical problems associated with the addiction and also
behavioral problems. In 2012, without the consultation of a psychiatrist or psychologist, the Johnson’s sent
Jack to a therapeutic boarding school, the Lonely Bridge School, in Idaho. Lonely Bridge was well known
as a school where celebrities and the wealthy could send their “troubled” teens for 365 days a year for
therapy and a high school education and had a strong reputation nationally. The Johnson’s paid tuition of
$48,000 in 2012, incurred $12,000 in travel costs (airfare, rental cars, and lodging) to attend required parent
therapy sessions at the school. They also deposited and spent $3,000 in a “personal account” used to cover
expenses associated with therapy and was required to maintain matriculation at Lonely Bridge. Jack spent
most of 2012 and 2013 at Lonely Bridge before running away in late 2013. Although no longer suffering
physical addiction, his behavioral issues remain today. In 2014, it was discovered that some of the staff at
Lonely Bridge, although therapists, were not credentialed as had been previously thought and that the
school was not accredited as parents had been led to believe. In addition, a number of high profile
“incidents” at the school that alleged unusual therapy methods and abuse forced Lonely Bridge to close in
2014. Prepare a tax research memo for your files regarding whether the Johnson’s can deduct the tuition,
travel costs and personal account expenses for tax purposes as a medical deduction (in excess of the floor)?
To: Files
From: Student
Date: Today’s date
Subject Deduction for Tuition and Travel for Special Boarding School
Facts:
Ozzie and Sherrie Johnson enrolled their son Jack in Lonely Bridge, a special school for troubled teens
where therapy is provided. In 2012, the Johnson’s paid tuition of $48,000. In addition, in order to attend
mandatory parent therapy sessions at the school, the Johnson’s incurred travel costs associated with airfare,
rental cars and lodging of $12,000 in 2013. Lastly, the Johnson’s were required to keep a personal account
at the school to cover expenses associated with therapy. During Jack’s tenure at Lonely Bridge, the
Johnson’s were under the impression that the program at Lonely Bridge was an accredited program for
education and drug-addiction related therapy.
Issue:
Can the Johnson’s deduct the cost of tuition, travel and the personal account as medical expenses?
Analysis:
The deduction for medical expenses is covered by§213 which permits a deduction for expenses paid for
medical care for the taxpayer, spouse or dependents. Under §213(d)(1), medical care is defined as amounts
paid for “the diagnosis, cure, mitigation, treatment, or prevention of disea ...
A Critique of the Proposed National Education Policy Reform
Example Case Ozzie and Sherrie Johnson lived in Bisho.docx
1. Example Case:
Ozzie and Sherrie Johnson lived in Bishop, California. The
Johnson’s 15 year old son, Jack, suffered from
illegal drug addiction and experienced both physical problems
associated with the addiction and also
behavioral problems. In 2012, without the consultation of a
psychiatrist or psychologist, the Johnson’s sent
Jack to a therapeutic boarding school, the Lonely Bridge
School, in Idaho. Lonely Bridge was well known
as a school where celebrities and the wealthy could send their
“troubled” teens for 365 days a year for
therapy and a high school education and had a strong reputation
nationally. The Johnson’s paid tuition of
$48,000 in 2012, incurred $12,000 in travel costs (airfare, rental
cars, and lodging) to attend required parent
therapy sessions at the school. They also deposited and spent
$3,000 in a “personal account” used to cover
expenses associated with therapy and was required to maintain
matriculation at Lonely Bridge. Jack spent
most of 2012 and 2013 at Lonely Bridge before running away in
late 2013. Although no longer suffering
2. physical addiction, his behavioral issues remain today. In 2014,
it was discovered that some of the staff at
Lonely Bridge, although therapists, were not credentialed as had
been previously thought and that the
school was not accredited as parents had been led to believe. In
addition, a number of high profile
“incidents” at the school that alleged unusual therapy methods
and abuse forced Lonely Bridge to close in
2014. Prepare a tax research memo for your files regarding
whether the Johnson’s can deduct the tuition,
travel costs and personal account expenses for tax purposes as a
medical deduction (in excess of the floor)?
To: Files
From: Student
Date: Today’s date
Subject Deduction for Tuition and Travel for Special Boarding
School
Facts:
Ozzie and Sherrie Johnson enrolled their son Jack in Lonely
Bridge, a special school for troubled teens
3. where therapy is provided. In 2012, the Johnson’s paid tuition
of $48,000. In addition, in order to attend
mandatory parent therapy sessions at the school, the Johnson’s
incurred travel costs associated with airfare,
rental cars and lodging of $12,000 in 2013. Lastly, the
Johnson’s were required to keep a personal account
at the school to cover expenses associated with therapy. During
Jack’s tenure at Lonely Bridge, the
Johnson’s were under the impression that the program at Lonely
Bridge was an accredited program for
education and drug-addiction related therapy.
Issue:
Can the Johnson’s deduct the cost of tuition, travel and the
personal account as medical expenses?
Analysis:
The deduction for medical expenses is covered by§213 which
permits a deduction for expenses paid for
medical care for the taxpayer, spouse or dependents. Under
§213(d)(1), medical care is defined as amounts
paid for “the diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose of affecting
any structure or function of the body [and] for transportation
primarily for and essential to medical care.”
Under §213(d)(2), “amounts paid for lodging while away from
home primarily for and essential to medical
care” if “the medical care referred to…is provided by a
physician in a licensed hospital (or in a medical
care facility which is related to, or the equivalent of, a licensed
hospital) shall be deductible as medical
4. costs,” but limited to $50 per person per night.
Reg. §1.213-1(e)(1)(ii) states that “an expenditure which is
merely beneficial to the general health of an
individual, such as an expenditure for a vacation, is not an
expenditure for medical care.” Furthermore, in
Reg. §1,213-1(e)(1)(v), the issue of a deduction for the costs of
having an individual in an institution
because of his condition are considered by the Treasury. The
regulation states that the expenses for care in
an institution which is regularly engaged in providing medical
care or services are deductible; however, the
regulations also state that “where an individual is in an
institution, and his conditions is such that the
availability of medical care in such institution is not a principal
reason for his presence there, only the part
of the cost of care in the institution as is attributable to medical
care.”
Regs. §1.213-1(e)(1)(v)(a)) further states:
While ordinary education is not medical care, the cost of
medical care includes the cost of
attending a special school for a mentally or physically
handicapped individual, if his condition is
such that the resources of the institution for alleviating such
mental or physical handicap are a
principal reason for his presence there.
and
5. In such a case, the cost of attending such a special school will
include the cost of meals and
lodging, if supplied, and the cost of ordinary education
furnished which is incidental to the special
services furnished by the school. Thus, the cost of medical care
includes the cost of attending a
special school designed to compensate for or overcome a
physical handicap, in order to qualify the
individual for future normal education or for normal living,
such as a school for the teaching of
braille or lip reading. Similarly, the cost of care and
supervision, or of treatment and training, of a
mentally retarded or physically handicapped individual at an
institution is within the meaning of
the term "medical care."
Two related revenue rulings have been issued on the topic of
institutional care for drugs and alcohol. Rev.
Rul. 72-226 states that “amounts actually paid by the taxpayer
to maintain his dependent in a therapeutic
center for drug addicts including the cost of the dependent’s
meals and lodging at the center which were
furnished as a necessary incident to his treatment, are expenses
for medical care.” Rev. Rul. 73-325 holds
that “amounts paid by the taxpayer to the therapeutic center for
alcoholism, including the cost of the
taxpayer’s meals and lodging at the center which are furnished
as a necessary incident to his treatment, are
expenses for medical care.”
6. Rev. Rul. 63-91 states that,
amounts paid for medical services rendered by practitioners,
such as chiropractors,
psychotherapists, and others rendering similar type services,
constitute expenses for “medical
care”…even though the practitioners who perform the services
are not required by law to be, or
are not (even though required by law) licensed, certified, or
otherwise qualified to perform such
services.
The ruling also cites Wendell (12 TC 161, 1949) in stating that
“the determination of what is medical care
depends on the nature of the services rendered, not on the
experience, qualifications, or title of the person
rendering them.” Rev. Rul. 63-91 also states
The Code and the regulations do not require a taxpayer to
ascertain whether a practitioner is
qualified, is authorized under state law, or is licensed to
practice, before obtaining his services or
claiming a medical expense deduction. Where it can be shown
that an individual paid an amount
for a purpose defined in the Code as “medical care,” such
amount qualifies as a medical expense.
In a 1992 Tax Court case, Urbauer (63 TCM 2492, 1992), the
court held that the taxpayers could,
7. deduct amounts spent in connection with the treatment of their
son for behavioral and drug
problems at a college-preparatory school that addressed the
educational and emotional needs of its
students. Since the son attended the school principally to
benefit from its medical program and the
costs of his education were incidental to the special services
provided by the school, his
enrollment costs were deductible as medical expenses.
In addition, the court held that since his personal account was
tantamount to his continued attendance at the
institution, those expenses were also deductible. However, the
court also held in Urbauer that the cost of
lodging was not deductible since the travel was for care that
was not provided by a physician in a licensed
hospital as required under §213(d)(2).
Conclusion:
In the Johnson’s case, the tuition for John at Lonely Bridge
meets the standard to be treated as “medical
care” under §213. The definition of medical care under Reg.
1.213-1 as including John’s therapy at Lonely
Bridge is also supported by Rev. Rul. 72-226 and Rev. Rul. 73-
325. Lastly, the facts in Urbauer closely
resemble the facts in the instant case, making it difficult to
distinguish between the two. Under Rev. Rul.
63-91, it does not appear relevant that Lonely Bridge was not
acting in good faith with respect to
qualifications or credentials. The Johnson’s travel costs are
deductible under §213, however, any part of
8. the travel costs related to lodging are not deductible by the
Johnson’s as Reg. 1.213-1 and Urbauer make it
clear that such costs are not associated with services provided
by a physician in a licensed hospital. Lastly,
the court in Urbauer held that the personal account expenses are
deductible due to the close association
those costs have with the rendering of medical services at the
school.
Below expectations Meets expectations Exceeds Expectations
Facts Critical facts omitted or substantial
unessential facts included. Unable to
apply or distinguish from other possible
fact patterns or facts are merely copied
from case.
Most critical facts identified and
communicated. Some unessential facts
included.
All pertinent facts have been described in
9. a clear and concise manner.
Distinguishing features of the fact pattern
are highlighted.
________
Content - Analysis Analysis is deficient in reference to
authoritative tax law. Analysis lacks
cohesion and does not support conclusion.
Analysis relies on secondary sources
when primary sources exist.
Analysis is incomplete or one-sided. Most
relevant authority has been identified.
Analysis is not perfectly logical or does
not support issue stated.
All necessary references to authority have
been made. Authority which could apply
but does not has been distinguished from
that which does. The analysis follows a
logical pattern of application to the facts
and supports author’s conclusion.
10. ________
Content-Conclusion Conclusion is unclear and unsupported by
analysis. Reader is not able to form
educated opinion on tax treatment of facts
pattern. Conclusion is a simple sentence
stating conclusion.
Conclusion fails to tie analysis and facts
together. Some conclusions made as part
of analysis instead of in conclusion.
Conclusion is clear and integrates with
facts and analysis. More than a simple
sentence stating conclusion. Cause and
effect relationship between facts and
analysis are made. All open issues are
responded to. Conclusion drawn is
correct.
________
Organization Paper lacks logical sequence hence
causing format to interfere with
readability. Does not use proper
11. paragraphing. Topic sentences do not lead
to rest of paragraph or are missing
altogether.
Paper follows logical sequence with
identifiable beginning, development, and
conclusion. Generally proper use of
paragraph structure and topic sentences.
Organization and/or headings help the
reader to follow and find information.
Paper flows well with appropriate
beginning, development, and conclusion.
Paragraph structure contributes to flow
and transitions. Organization and/or
headings help the reader to understand
and remember information.
________
Audience Writer is internally focused rather than
focused on the reader. No clear awareness
or understanding of the audience is
12. evident. Writer may appear discourteous
to the reader.
Writer acknowledges the reader and
displays some thought about the nature of
the audience. Reader is treated politely
and positively. No evidence of
inappropriate attitude.
Writer clearly focuses writing to the
audience, and displays empathy for the
reader. Goodwill is created through
consideration of the reader’s needs.
Message tailored directly for the reader.
________
Style Overuse of simple sentences. May misuse
words or idioms. May include slang.
Wordy rather than concise. Writing shows
lack of sophistication or variety in
vocabulary. Awkward. Little or no use of
business terms.
Sentences vary in length and style. Strong
13. action verbs are used. Occasionally uses
jargon or clichés. Vocabulary and word
usage generally is correct and shows some
variety. Uses business terms
appropriately.
Demonstrates a sophisticated grasp of the
language in terms of both sentence
structure and vocabulary. Writes fluidly
and concisely. Includes appropriate
business terms.
________
Mechanics Significant errors in word usage, sentence
structure (run-ons, fragments), spelling,
punctuation, and capitalization. Errors
undermine credibility of content and
readability.
Relatively free of errors in word usage,
sentence structure (run-ons, fragments),
spelling, punctuation, and capitalization.
Mechanics do not detract from credibility
14. of the content.
No errors in word usage, sentence
structure (run-ons, fragments), spelling,
punctuation, and capitalization. Strong
mechanics help to establish credibility.
________
Referencing References (if called for) are missing or
do not use correct referencing style.
Generally correct referencing (if called
for).
References (if called for) are consistently
correct. No missing citations.
________
Background:
Roger is a very loyal Aztec basketball fan who graduated from
SDSU in 2014. In 2015 he decided to join
15. SDSU’s ticket program, which required a $1,000 “contribution”
to SDSU which then provided him the
“right” to purchase tickets. Roger decided to purchase season
tickets for $800. Roger understands that
the cost of the season tickets is not tax deductible as a
charitable contribution, but contributions to a
university are generally tax deductible.
Your responsibility:
Prepare a tax research memo for the tax files regarding the
federal income tax treatment of the
deductibility of the contribution to SDSU in the amount of
$1,000 for the “right” to purchase tickets to
basketball games for 2015. You will need to support your
conclusion using primary sources of tax law.
Your textbook is NOT primary authority.
You must use proper citation form in your memo (see Chapter 2
for help with citation form). The form
for this communication should be professional and in the form
of a tax research memo (example posted
on Blackboard and a similar example in your text on p. 2-21).
Do yourself a favor and look at the grading
16. rubric before you submit.
This memo should be whatever length you feel is appropriate to
resolve the issues. We do NOT use a
bibliography or list of references in a tax research memo. You
will see that citations are within the text
of the document in the example. Once a court case has been
cited in full, it can be referred to using
simply the name in italics.
You are required to INDIVIDUALLY prepare this document.
Please upload your memo into Turnitin in
Blackboard before 10am on the due date.
The grading rubric for Tax memos is posted in Blackboard.
For this assignment, points are distributed as
follows:
Aspects of the memo Points
Content - facts 16
Content - analysis 30
Content - conclusion 14
Organization 8