Turecamo v. Comm'r of Internal Revenue

• Decision Date: 30 July 1975
• Docket Number: Docket No. 5441-72.
• Citation: 64 T.C. 720
• Parties: ALFRED H. AND FRANCES TURECAMO, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

64 T.C. 720

ALFRED H. AND FRANCES TURECAMO, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 5441-72.

United States Tax Court

Filed July 30, 1975.

Alfred H. Turecamo, pro se.

L. Willian Fishman, for the respondent

1. In computing the total support of a person for the purpose of secs. 151 and 152, I.R.C. 1954, payment of hospital costs by Medicare provided for in part A of tit. XVIII of the Social Security Act, as amended, 42 U.S.C. sec. 1395, should not be treated differently from payments of medical or hospital costs as provided for in part B tit. XVIII of the Social Security Act, as amended, or by private health insurance, and, therefore, following respondent's rulings as to the latter, the medical payments made under part A are not includable as part of the recipient's total support for purposes of secs. 151 and 152.

2. From the evidence amount of casualty loss determined.

SCOTT, Judge:

Respondent determined a deficiency in petitioners' income tax for the calendar year 1970 in the amount of $1,043.48.

The issues for decision are:

(1) Whether petitioners contributed more than half of the support of the mother of one of them during the calendar year 1970 so as to be entitled to a dependency exemption for her and a medical expense deduction for medical expenses they paid for her where the total support payments made on her behalf by petitioners were less than her hospital expenses which were paid by medicate allowances.

(2) Whether petitioners are entitled to a deduction for a casualty loss of $375 as a result of damage to their automobile.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioners husband and wife, who resided in Douglaston, N.Y., at the time their petition in this case was filed, filed a joint Federal income tax return for the calendar year 1970 with the District Director of Internal Revenue, Brooklyn District, New York.

Frances Kavanaugh, the mother of Frances Turecamo and the mother-in-law of Alfred H. Turecamo, who was 81 years old during the calendar year 1970, began living with petitioners prior to the beginning of the calendar year 1970. Mrs. Kavanaugh, during the calendar year 1970, received $1,140 in social security benefits. During this year petitioners provided Mrs. Kavanaugh with two and one-half rooms in their home which she used as her apartment. They maintained a telephone in these rooms for Mrs. Kavanaugh's use. During the time that Mrs. Kavanaugh was residing in petitioners' home, they provided her meals which she ate with petitioners' family. They provided the furnishings in Mrs. Kavanaugh's rooms including a television set, some clothing for Mrs. Kavanaugh, and occasional entertainment. Mrs. Kavanaugh did not reimburse petitioners for any of the support furnished to her but used the amount she received from social security for her own support as she saw fit. The total amount contributed by petitioners toward Mrs. Kavanaugh's support through the furnishing of an apartment, food, clothing, and entertainment for her was approximately $4,000.

On August 5, 1970, Mrs. Kavanaugh was admitted to the Long Island Jewish Hospital in New Hyde Park, Long Island, New York, and was discharged from the hospital on October 9, 1970. Her total hospital charges while she was in the hospital were $11,095.75, of which $10,434.75 was discharged by ‘Medicare allowances,‘ which benefits were payments which were made pursuant to the provisions of ‘Part A— Hospital Insurance Benefits for the Aged,‘ 42 U.S.C., ch. 7, sec. 1395c, amending tit. XVIII of the Social Security Act.

In addition to hospital costs, Mrs. Kavanaugh's condition required nursing care. During the calendar year 1970, petitioners expended $3,531 for hospital and nursing care for Mrs. Kavanaugh. Mrs. Kavanaugh died in the early part of December 1970.

On their joint Federal income tax return for the calendar year 1970, petitioners claimed a dependency exemption for Mrs. Kavanaugh and claimed $3,531 as deductible medical expenses which they paid on behalf of Mrs. Kavanaugh in the year 1970. The total medical expenses claimed by petitioners amounted to $4,017 from which they subtracted $674 as representing 3 percent of their reported adjusted gross income, leaving a medical expense deduction claimed by them of $3,343.

Respondent in his notice of deficiency disallowed petitioners' claimed dependency exemption for Mrs. Kavanaugh, stating that petitioners had not established that Mrs. Kavanaugh had qualified as their dependent under sections 151 and 152, I.R.C. 1954.¹ Respondent also disallowed petitioners' claimed medical expense deduction of $3,343 with the explanation that it had not been established that this amount was expended for the purposes designated.

In August 1970 petitioners had their 1966 Chrysler Newport sedan automobile, which they had purchased new in 1966 for approximately $3,600, parked in the parking area of the shopping center in Douglaston, N.Y. Upon returning to the car petitioners found that both doors and one fender on the car had been badly smashed. No note or any other indication was left on the car to show by whom or how the damage was caused. Petitioners had no insurance on the car. They had the car repaired at a cost of between $475 and $500.

Petitioners on the income tax return for the calendar year 1970 claimed a casualty loss deduction of $375.

Respondent in his notice of deficiency disallowed the claimed $375 casualty loss which petitioners claimed as resulting from damage to their automobile, stating that it had not been established that any deductible loss had been sustained.

OPINION

Respondent's primary position is that the amounts paid as basic medicare benefits under part A— ‘Hospital Insurance Benefits for the Aged’ of the Social Security Act are in the nature of disbursements made in furtherance of the social welfare objectives of the Federal Government; and, therefore, in determining whether the individual for whom the medicare benefits are paid is a dependent of another, these payments, though not includable in the gross income of the recipient, should be viewed as amounts paid by the recipient for his own support just as are social security benefits. Respondent distinguishes the payments under part B from those under part A and states that in his view payments made under part B are in the nature of health insurance benefit payments and therefore are not a part of the support of the person for whom made.²

Petitioners take the position that medicare payments made on behalf of an individual to a hospital under part A are health benefit insurance payments just as are payments made under part B or any private insurance program. In support of their position petitioners point to the provisions of sections 3101(b) and 3111(b) of the 1954 Internal Revenue Code, both of which are entitled ‘Hospital Insurance,‘ the former providing for a tax on the income of every individual equal to stated percentages of his wages, and the latter providing for an excise tax on the employer based on a percentage of his employees' wages and to title 42, section 139i (entitled ‘Federal Hospital Insurance Trust Fund’) of the United States Code which provision is in part A of subchapter XVIII of the Social Security Act as amended. This section provides for the creation of a ‘Federal Hospital Insurance Trust Fund’ with the amounts received from the taxes imposed by sections 3101(b) and 3111(b) of the Internal Revenue Code.

Petitioners further point to the testimony of an expert witness offered by respondent to the effect that the basic medicare program is not a need or welfare program but a work-oriented insurance program provided without regard to means for those persons who qualify for the benefits based on work done either by them or their spouses.

Respondent's argument in summary is that since the basic medicare benefits provided for under part A of title XVIII of the Social Security Act as amended are financed by taxes, which taxes are not stated in section 213(e)³ to constitute amounts paid for health insurance, benefits received by an individual through payment of hospital costs on his behalf by basic medicare should be considered a part of his support.

Respondent concludes from his ruling (Rev. Rul. 66-216, 1966-2 C.B. 100) that premiums paid by an individual under part B of title XVIII of the Social Security Act as amended are part of deductible medical expenses under section 213, and it therefore follows that the payments made on behalf of an individual under part B are not to be included in the amount furnished by that individual for his own support for the purpose of the dependency exemption provided under sections 151 and 152.⁴

We have in a number of cases recognized that medical expense is a part of an individual's support and have held premiums paid for medical insurance to be a part of medical expense for support determinations. See Warren C. Mawhinney, 43 T.C. 443 (1965), affd. per curiam 355 F.2d 462 (3rd Cir. 1966), in which we listed medical fees, medicines, and health insurance payments, all as part of the support of the taxpayer's children.

In our view it is clear that hospital expenses are medical expenses which form a part of an individual's support. If the expenses are paid and not covered by any form of insurance, there would appear to be no question that the person paying the hospital expense has contributed the amount of the payment to the support of the individual for whom the payment is made. The problem is how should such expenses paid by insurance be treated and should medicare payments made under part A be treated as other insurance payments.

We agree with petitioner that no valid basis exists for distinguishing between the hospital insurance benefit payments made under part A of title XVIII of the Social Security Act as amended and the medical benefit payments made under part B of that Act or some form of private...