Ferris v. C. I. R., 77-2267
| Decision Date | 15 August 1978 |
| Docket Number | No. 77-2267,77-2267 |
| Citation | 582 F.2d 1112 |
| Parties | 78-2 USTC P 9646 Collins H. FERRIS and Bonnie Bach Ferris, Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
John A. Dudek, Jr., Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D. C., for respondent-appellant.
Floyd A. Brynelson, Madison, Wis., for petitioners-appellees.
Before PELL, SPRECHER, and WOOD, Circuit Judges.
In 1971, taxpayers Collins and Bonnie Ferris spent $194,660 to construct a swimming pool addition to their home in Maple Bluff, Wisconsin. The question is this litigation is how much of that sum may be deducted from the couple's 1971 income as a medical expense in computing their federal tax liability for that year.
Certain background facts are not disputed. Mrs. Ferris suffers from a degenerative spinal disorder which was, in 1970, causing her serious difficulty in walking or sitting. Her physician recommended that the Ferrises install a swimming pool at their residence and that Mrs. Ferris use it twice a day for the rest of her life to prevent the onset of permanent paralysis.
The Ferris residence was fairly described by Sherman Geib, taxpayers' expert appraiser as The residence is a two and one-half story English Tudor style home, constructed of hand-cut, hand-laid stone, with servants' quarters, pantries, and other amenities befitting a home of its type. Geib estimated the market value of the home prior to the construction of the pool addition at $275,000, including therein the $160,000 value of the 3.8 acres on which the house is built.
The Ferrises, responding to the physician's suggestion, retained an architect to design an addition to their home to enclose a swimming pool. He designed a 20 by 40 foot pool with a hand-cut stone edge, Tudor style semi-circular ends, and a fountain. He recommended that the housing structure and the interior areas ought to be designed so as to use materials architecturally compatible with the main residence and of the same quality construction. The Ferrises agreed, and the exterior of the addition was constructed of hand-cut, hand-laid stone, with an expensive roof to match that of the residence. The interior featured more hand-cut stone for some walls, exposed cedar paneling for others, a cathedral ceiling with exposed wood paneling, and a ceramic tile pool deck area. All of these features, needless to say, were costly. The architect also proposed, and the Ferrises accepted, inclusion in the structure of a number of recreational entertainment facilities, such as a bar and cooking area, a sauna bath, an open terrace, a raised dining area, an indoor sunning area, and two dressing rooms. Geib, the appraiser, estimated that the swimming pool addition increased the value of the Ferris home by $97,330.
On their joint federal tax return for 1971, taxpayers claimed that $172,160 of the $194,660 spent on the pool addition were expenses for medical care within the meaning of 26 U.S.C. § 213. 1 Taxpayers had reduced the cost of the pool by the amount of money estimated to have been spent for some of the entertainment and recreational features included in the addition. Based on Geib's appraisal that the increase in the value of the residence would be roughly 50% Of the cost of the addition, taxpayers claimed as deductible uncompensated expenses for medical care $86,000. The Commissioner of Internal Revenue took a different view, determining that the entire cost of a building to house the pool was not incurred primarily for medical purposes, and, using taxpayers' appraiser's 50% Value added factor, allowing only a deduction of $6,500, roughly one-half of the $13,074 cost of the pool itself.
In the proceedings in the Tax Court, the Commissioner conceded that some sort of enclosure was medically necessary if Mrs. Ferris was to take twice-daily swims during the winter, and the battle shifted to the question of how much of the costs of the luxurious addition constructed by the Ferrises was properly deductible. The Commissioner contended that the expensive construction materials used were not medically necessary, and that a cost reduction should be made to account for the fact that the non-medical features built into the addition necessarily increased its size above what would have been medically necessary. He argued that an adequate pool with enclosure could have been built for $70,000 that would have increased the value of taxpayers' residence by $31,000, and thus that only $39,000 should be considered a medical expense.
The Tax Court found as a fact that "no doubt . . . a large portion of the total cost of the . . . addition was attributable to the need of having the structure architecturally and aesthetically compatible with petitioner's residence which is clearly a personal motivation." The court rejected the Commissioner's argument that the degree to which the addition's costs could be considered medical expenses should be accordingly reduced, however, because it was aware of "no case limiting a medical expense within the meaning of section 213 to the cheapest form of treatment." The court did agree with the Commissioner that a reduction to account for the enlarged size of the building due to the clearly nonessential features of the addition was appropriate, and reduced taxpayers' claimed medical expense by $4,000 (50% Of the $8,000 it found allocable to the space for nonessentials). The court reasoned, alternatively, that the Commissioner's hypothetical $70,000 addition (with $10,000 of extra costs the court thought were medically necessary but which were not included in the Commissioner's hypothetical figures) would have added nothing to the value of taxpayers' residence, thus yielding virtually the same result the court had reached by its preferred approach. The Commissioner appeals.
As we have indicated, the Commissioner does not dispute that the reasonable costs of a swimming pool and enclosure, to the degree they are uncompensated by increased value in taxpayers' residence, are properly deductible as a medical expense within the meaning of § 213 in the circumstances of this case. It no doubt would startle the average taxpayer that the cost of an enclosed swimming pool facility, which would typically be erected for other than medical purposes and which, even given a medical motive for its construction, could receive substantial nonmedical use once built and could be deducted for federal income tax purposes. 2 Even those with passing familiarity with federal tax principles might well be surprised that an expense like this, which is clearly capital in nature, could possibly be deducted in its entirety in the year in which incurred. See 26 U.S.C. § 263(a).
Nonetheless, this is the approach Congress has chosen. Section 213 contains no ceiling limitation on the amount of deductible medical expenses, although all earlier formulations of the deduction did contain such a limitation. See Section 127 of the Revenue Act of 1942, ch. 619, 56 Stat. 798; Section 213 of the Internal Revenue Code of 1954, ch. 736, 68A Stat. 69; Section 1 of the Act of October 23, 1962, 76 Stat. 1141. When the ceiling limitations were removed by the Social Security Amendments of 1965, P.L.No.89-97, 79 Stat. 286, Congress was responding to the hardship imposed when a taxpayer incurred extraordinary medical expenses but was obliged to pay income taxes on funds used to defray them. See H.Conf.Rep.No.682, 89th Cong., 1st Sess., at 48 (1965); U.S.Code Cong. & Admin.News 1965, p. 1943. It nonetheless recognized that its choice would allow deductibility of expenses "for facilities, devices, services, and transportation which are of the types customarily used, or taken, primarily for other than medical purposes," Id., U.S.Code Cong. & Admin.News 1965, p. 2243, and expressed its concern over the possibilities of abuse in such areas, swimming pools being specifically cited. Id. We believe the history of ceiling limitations on medical deductions and Congress' expressed concern over the abuse potential inherent in removing that limitation counsel against loose construction of § 213, but it does seem clear that even capital expenditures, to the extent they are uncompensated by increases in property value, may be considered medical expenses to the degree they are incurred "for medical care" within the meaning of § 213. See Oliver v. Commissioner of Internal Revenue, 364 F.2d 575, 578 (8th Cir. 1966); Riach v. Frank, 302 F.2d 374 (9th Cir. 1962); Wallace v. United States,309 F.Supp. 748 (S.D.Iowa 1970), Aff'd, 439 F.2d 757, 759 (8th Cir. 1971), Cert. denied, 404 U.S. 831, 92 S.Ct. 71, 30 L.Ed.2d 60; Gerard v. Commissioner of Internal Revenue, 37 T.C. 826 (1962).
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