Taylor v. Commissioner
1987 Tax Ct. Memo LEXIS 396, 54 T.C.M. 129, 1987 T.C. Memo. 399 (1987)
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Rule of Law:
Taxpayers must strictly comply with statutory deadlines for Subchapter S elections to qualify for pass-through treatment of corporate losses and credits, and a doctor's recommendation for a personal expense does not automatically transform it into a deductible medical expense under IRC Section 213 if it does not directly relate to medical care.
Facts:
- George R. Taylor (petitioner) and Mr. Sang Kee Ahn incorporated A & T International, Inc. (A & T), a Maryland corporation, on January 1, 1982.
- In 1981, Taylor and Ahn engaged attorney Mr. Scott White to prepare A & T's incorporation documents and file the necessary Subchapter S election (Form 2553).
- Taylor assumed the 'S' election had been properly filed and instructed his tax preparer to file A & T's federal income tax returns as an 'S' corporation (Form 1120S) for 1982 and 1983.
- On his individual 1982 and 1983 returns, Taylor deducted A & T's losses and claimed an investment tax credit (ITC) for 1982, anticipating pass-through treatment as an S corporation shareholder.
- In May 1983, Taylor received a letter from the IRS stating that A & T's Forms 1120S would not be processed because no Form 2553 for the 'S' election was on file.
- Taylor subsequently filed a Form 2553 on May 12, 1983, stating an effective date of January 1, 1982, but this form lacked shareholder consents.
- Due to a severe allergy, Taylor's doctor instructed him not to mow his lawn.
- In 1982, Taylor paid $178 to have his lawn mowed and claimed this amount as a medical expense deduction on his tax return.
Procedural Posture:
- The Commissioner of Internal Revenue determined deficiencies in George R. Taylor and Pearlie H. Taylor's income tax for the calendar years 1982 ($11,352) and 1983 ($11,839).
- George R. Taylor and Pearlie H. Taylor (petitioners) filed a petition with the United States Tax Court challenging these determined deficiencies.
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Issue:
1. Does a corporation's failure to file a timely Subchapter S election, even if due to attorney error, entitle taxpayers to be treated as if a valid election had been made, thereby allowing them to deduct corporate losses and investment tax credits? 2. Are lawn care expenses, incurred because a doctor advised against mowing due to a severe allergy, deductible as medical expenses under IRC Section 213?
Opinions:
Majority - Scott, Judge
No, A & T did not have a valid S corporation election in effect for 1982 or 1983, and no, the lawn care expenses are not deductible medical expenses. The court held that the explicit statutory time limits for making a Subchapter S election under both former Section 1372 (for 1982) and Section 1362 (for 1983) of the Internal Revenue Code must be strictly enforced. The Form 2553 filed on May 12, 1983, was untimely for both 1982 and 1983, and additionally lacked the required shareholder consents, thus it could not be effective until 1984 at the earliest. The court stated it cannot grant equitable relief or an extension in the face of definite time limits set by Congress, citing prior cases like Frank E. Bell and Maltais. Regarding the medical expense, the court determined that lawn care expenses are generally nondeductible personal expenses under Section 262. While Section 213 allows deductions for 'medical care,' defined as amounts paid for the diagnosis, cure, treatment, or prevention of disease, or for affecting any body structure or function, the petitioner failed to establish that the lawn care expenses fell within this definition. The court noted that a doctor's recommendation alone does not make an expense deductible if it does not fit the parameters of 'medical care,' drawing an analogy to a golf expense deemed nondeductible in Jacobs. Petitioner also failed to show why other family members could not perform the lawn care or if he would have incurred the expense regardless of the doctor's direction.
Analysis:
This case reinforces the principle of strict construction applied to tax statutes, particularly regarding elective provisions like Subchapter S status. It highlights that the IRS and courts generally will not grant equitable relief for a taxpayer's failure to meet specific statutory deadlines, even if the failure is attributable to professional negligence. For law students, this case underscores the importance of precise compliance with procedural tax requirements. It also illustrates the narrow interpretation of what constitutes a 'medical expense' under IRC Section 213, emphasizing that the expense must be directly for medical care, not merely a personal expense incurred due to a medical condition. Taxpayers bear a high burden of proof for such deductions.
