limit would achieve and expressed our common belief that it was 'undesirable to impose any minimum limitation with respect to the deductibility of medical expenses in the case of the aged.' "By deleting from the House bill these features which imposed new limits on medical expense deductions of the aged, the committee restates its position of last year." Unfortunately, in Conference, the House of Representatives position prevailed, and the law was enacted, effective January 1, 1967, denying to the elderly first dollar deduction of medical and drug expenses. I submit that the House was wrong on this question, and that the Senate was right. If your Subcommittee should agree, remedial legislation could be enacted this year to prevent the scheduled denial of deductions from becoming effective on January 1, 1967. I do feel that the provision according first dollar deduction of medical insurance premiums, not to exceed $150, to persons below the age of 65, is in the public interest, and ought to be retained. Very sincerely yours, Hon. GEORGE A. SMATHERS, Chairman, Senate Special Committee on Aging, DUDLEY PORTER, Jr., Attorney at Law. NORWOOD PARK HOME, Chicago, Ill., May 17, 1966. DEAR SIR: This refers to your release dated May 14th, having to do with the "Tax Consequences of Contributions to Needy Older Relatives." We are very much interested in that a Committee is now going to investigate this problem of the support of children to their aged parents. Based on our 17 years experience as the Administrator of this Home, it is our considered opinion that some definite relief other than the one exemption allowable by the Internal Revenue Department for the support of an aged relative should be considered. As you know this exemption amounts to $600.00 and does not begin to nearly meet the outlay that is in many instances necessary for the aged or infirm parent. While it is true that in recent years some allowance has been made for the expenditure of medical expenses for an aged parent, the burden of proof to the child has been of such nature that in many instances it is almost impossible to break this down as to what constitutes actual medical expenses. We are operating a Home for the Aged having been in existence since the year of 1896, we have in connection with our Home a most excellent infirmary section of 75 beds, and we have not as yet attempted to break down our cost of operation with respect to ambulatory and infirmary beds. We have established a basic cost of $225.00 per month for ambulatory services and $250.00 to $350.00 per month for infirmary services. Assuming that a child has a parent in our infirmary section, he may be faced with a fee of $3000.00 to $4200.00 per year, depending on the facility used and the amount of nursing care required. In many instances, children are liable for these fees, it does not take a Certified Public Accountant to ascertain that with a $600.00 exemption allowance for the responsibility of the support of the parent, that the child is not in a very good position with respect to his payment of taxes. It is true that where medical services can be broken down, Internal Revenue Service will recognize all of such expenses at the present time, but whether or not they will recognize all of these expenses in addition to the $600.00 exemption is not too definite. The argument may be raised that we should be in a better position to determine our costs. This may well be, but in our ambulatory section of which we have 65 beds, we are certain that there is not one of these ambulatory residents who does not get some medical care during the course of the year, and this not of a minor consequence, but in many instances are served daily to some degree by our nursing staff, in many and various ways. Accordingly it is not practicable for us, at the moment, to attempt to break these costs down to a situation where we would actually be able to prove without any equivocation that the costs were as they were stated to be. Accordingly we prefer to operate on the basis of an overall cost per bed system. This, of course, is of no help to the child who is supporting his parent at the time that he is filing his income tax return, and is required to get a complete breakdown of the medical services required for the parent. The quotations listed in your release, therefore, come as a very encouraging factor to us in this field, inasmuch as we are almost daily faced with the problem of how best to advise children—and especially those who are willing and able to pay for their parents as to how they will come out in their tax structure. It is apparent on the basis of this news release that you are going into this rather deeply and we have no doubt but what some very important legislation may undoubtedly originate through your efforts. We commend you for your thoughtfulness, and we look forward to more information coming out of your Committee. Thank you very much for having included us on your mailing list to keep us informed of the happenings within your Committee. Very truly yours, A. GARFIELD STENSLAND. Hon. GEORGE A. SMATHERS, Chairman, Senate Special Committee on Aging, NORWOOD PARK HOME, Chicago, Ill., June 20, 1966. DEAR SENATOR SMATHERS: We have just come upon another case and since it is a current one, and further since it would have a distinct bearing on your present discussions, we are again taking the liberty of writing you fully concerning it. The case concerns a 99 year old mother of a retired [man]. She has been a resident in our Home in the full infirmary section since August of 1964. The rate charged her is $300.00 per month so that the son has had a complete liability of $3600.00 a year to pay for his mother. This son is an only child and is now at 75 years of age, his wife is still liv ing. . . . He is still able to conduct his own affairs as such, but being retired he obviously has no income other than what he has been able to accumulate through . . . savings, and undoubtedly has income through investments which he may have made during his earlier years. They live in modest circumstances, we would say middle-class personalities. In discussing this case with his wife a few days ago, we were informed that at the time of filing his tax return the only allowance that Internal Revenue would give him was a $600.00 exemption for his aged mother, which to us is totally unfair. He has made several appeals, but to no avail. Our purpose in writing you further concerning this is because of the fact that this is a current case presently being handled in the manner in which you are decidedly interested and one that certainly requires further consideration in connection with the filing of his tax return. Since he is an only child there is no other person that he can rely on to contribute anything towards his mother's care, she is totally without funds, even to the point of receiving no Social Security, and because of this fact, obviously he is entirely responsible for her care and maintenance. Within the next two months he will have paid out a total of $7200.00 for her care, for which the Internal Revenue Department has allowed him a $600.00 exemption for each year. He has made no appeal to us for consideration in the changing of our fees for our services, but in speaking with his wife recently, she brought this out in a very pointed manner, that a person of themselves attaining to the age of 65 is immediately granted an extra exemption for $1200.00 by the Revenue Department, however, should a child be supporting a parent 65 or over, the Internal Revenue Department and the regulations say that you will be allowed one exemption for your support and maintenance of the aged parent. It seems logical that the least they could do would be to grant an additional exemption to a person 65 or over on the same basis were he filing his own return. In other words, assuming that I would be supporting an aged parent that I would be granted $1,200.00 exemption for the support of that person, this would at least assist in a small manner, however, we believe that a situation such as the one just cited, where this 99 year old person is in our infirmary section and requires complete nursing care, being in bed 99% of the time, that the entire amount should be allowed as a deduction for medical expenses for that person irrespective of the $600.00 exemption. We have no way of telling how long this might go on as a liability for this retired man, but in any event, this story should give you further food for thought in your committee deliberations, and we again appreciate the opportunity of having brought this to your attention. As an aside we might mention that on December 15, 1966, we will have had one person in our infirmary section who has been with us a total of 15 years, and the sum total collected for her care and maintenance is in the neighborhood of $45,000.00. This, of course, is an unusual case, but if you or I were responsible for the payment of these fees, you can rest assured that we would be taking the aspect of buying a dead horse for the sums expended not withstanding that we were supporting a blood relative. This we believe also merits some consideration. Thank you again for lending us your ear to hear of these stories. Very truly yours, A. GARFIELD STENSLAND, Administrator. (The committee directed an inquiry to Commissioner Sheldon S. Cohen of the Internal Revenue Service, based upon the foregoing letter, and received a reply from Commissioner Cohen, as shown by his letter which follows:) U.S. TREASURY DEPARTMENT, INTERNAL REVENUE SERVICE, Washington, D.C., August 3, 1966. Hon. GEORGE A. SMATHERS, Special Committee on Aging, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: In your letter of June 22, 1966, you requested information concerning: (a) the type of facility which qualifies as a medical institution so that the cost of care therein will be an expenditure for medical care; and (b) the provisions of the "Child Care Deduction" with respect to institutional care of older relatives and the applications of this deduction to the specific case outlined in your enclosure. Section 213 of the Internal Revenue Code permits a taxpayer to deduct (subject to certain limitations) expenditures for medical care. Medical care is defined, in pertinent part, by section 213 (e) 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. Section 1.213–1(e) (1) (v) of the Income Tax Regulations provides that the cost of in-patient hospital care (including the cost of meals and lodging therein) is an expenditure for medical care. The extent to which expenses for care in an institution other than a hospital shall constitute medical care is primarily a question of fact which depends upon the condition of the individual and the nature of the services he receives (rather than the nature of the institution). Questions of fact are determined by the district directors of internal revenue upon the merits of each case. However, the Regulations (at section 1.213–1 (e) (1)(v)(a)-(b)) provide the following guidelines for these determinations. Where an individual is in an institution because his condition is such that the availability of medical care in such institution is a principal reason for his presence there, and meals and lodging are furnished as a necessary incident to such care, the entire cost of medical care and meals and lodging at the institution, which are furnished while the individual requires continual medical care, shall constitute an expense for medical care. For example, medical care includes the entire cost of institutional care for a person who is mentally ill and unsafe when left alone. Where an individual is in an institution, and his condition is such that the availability of medical care in such institution is not a principal reason for his presence there, only that part of the cost of care in the institution as is attributable to medical care shall be considered as a cost of medical care; meals and lodging at the institution in such a case are not con sidered a cost of medical care for purposes of this section. For example, an individual is in a home for the aged for personal or family considerations and not because he requires medical or nursing attention. In such case, medical care consists only of that part of the cost for care in the home which is attributable to medical care or nursing attention furnished to him; his meals and lodging at the home are not considered a cost of medical care. Section 214 of the Code allows certain taxpayers a deduction (the child care deduction) for amounts spent, with certain limitations, for the care of one or more dependents. In order for an expense to be deductible under section 214, it must meet three conditions: First, the expense must be for the care of a dependent; second, it must be for a dependent's care while the taxpayer is gainfully employed or in search of gainful employment; and third, the expense must be for the purpose of enabling the taxpayer to be gainfully employed. In determining whether an expense meets these conditions, all the facts and circumstances of the case must be taken into consideration. The phrase "expenses for the care of a dependent" means amounts expended for the primary purpose of assuring the dependent's well being and protection. It does not include all benefits which may be bestowed upon him. Accordingly, amounts expended to provide food, clothing, or education, are not, in themselves, amounts expended for "care" so as to be deductible under section 214. However, where the manner of providing care includes payments for other benefits which are inseparably a part of the care, the full amount of the expense is considered as incurred for care. Thus, the charges for a home for the aged is often deductible under this section. This deduction is available only to the following classes of taxpayers: 1. Any working woman; 2. Working widowers (which includes, under section 1.214-1(b)(1) of the Regulations, divorced and legally separated taxpayers); 3. Husbands of incapacitated or institutionalized wives. With respect to the illustrative example, contained in the June 20, 1966, letter to you from the Norwood Park Home, enclosed in your letter, the son, whose mother is in the Norwood Park Home, is not eligible to take the "child care deduction" as he does not meet the requirements of section 214 of the Code, as outlined above. There are enclosed, for your convenience, copies of Documents No. 5020 and No. 5052 dealing, in greater detail, with the subject deductions. With kind regards, SHELDON S. COHEN, Commissioner. LAW OFFICES, Hon. GEORGE A. SMATHERS, BOYLE, WHEELER, GRESHAM, DAVIS AND GREGORY, Senate Office Building, Washington, D.C. DEAR SENATOR SMATHERS: I see from the news that you are furthering legislation to give relief to those persons supporting parents, apparently by way of an additional exemption if such person is over age. I think anything you could accomplish to alleviate this situation would be very helpful and I urge you to continue your actions in the matter. Yours very truly, RUPERT N. GRESHAM. APPENDIX C REPRESENTATIVE LETTERS ON HEARING, RECEIVED BY COMMITTEE ALABAMA 2001 SOUTH 13TH AVENUE, Birmingham, Ala. 35205, May 20, 1966. DEAR SENATOR SMATHERS: According to the attached clipping, your Committee on Aging is considering some changes to encourage children to help support their parents. I would like to call your Committee's attention to an interpretative position taken by IRS which is patently unfair, and in my opinion contrary to law, or at least, contrary to the intent of Congress. In 1961 I claimed my mother as a dependent, all requirements for this claim being apparently appropriate. I was advised by the Jackson, Mississippi, IRS office that I could not claim my mother as a dependent since she had a gross income in excess of $600.00. She rents two small apartments and received some $1,000.00 in rents for the year. The expenses of operating the apartments was about $700.00, leaving her an income of about $300.00. This was her sole income, except for contributions by me and my brothers. In the above case, it was ruled that her gross income for purposes of the exemption was $1,000.00. In answer to a specific question, I was advised by the auditor that a parent who actually sustained a loss on rents or other type of business could not be claimed as a dependent if the total receipts from the activity exceeded $600.00. I checked this position with two IRS agents who are personal friends, and also with the chief of the audit section in Jackson, and was advised that the above is correct. I had to pay back taxes with interest. Sincerely yours, ARIZONA LOUIS F. PROVINE. JUNE 22, 1966. HONORABLE SIR: It is with interest I read of your attempt to get some idea of the hardship involved in taking care of elderly parents. At the present time, my husband, a Technical Sergeant in the U.S.A.F., supports my mother, who is on social security. Up until 15 June, his take home pay was 170.00 every two weeks. Out of this we pay house payments, utilities, food etc for five people. Yet we cannot deduct mother's expenses on income tax and have her as a dependent. Thank you for efforts on our behalf. Sincerely, [Name withheld.] ARKANSAS (See letter from Otis R. Holloway on p. 63.) |