Tax Accounting Cases

1. Deducting Cosmetic Surgery

Issue:

Can Ms. Gorgeous deduct the cost of her cosmetic surgery enhancements as a medical expense?

Facts:

Ms. Gorgeous is an aspiring actress who has managed to earn a living doing television commercials.

Decided to have botox injections in her forehead and collagen enhancements to her lips to hopefully move up in the industry.

After the procedures, her career drastically improved and she received movie offers.

Statutory:

Section 213(d)(9) classifies and treats cosmetic surgery as follows:

(A) The term “medical care” does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease.

(B) The term “cosmetic surgery” means any procedure which is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

Discussion:

Ms. Gorgeous' cosmetic improvements were solely to enhance her beauty and to hopefully land her a better job. Her procedures had nothing to do with fixing a deformity from either birth, a disease or illness, or even an accident. Ms. Gorgeous claims she has read about another actress deducting a face-lift in 1988 and I believe it is untrue...I haven't found any cases of cosmetic surgery being able to be deducted solely to improve looks.

Conclusion:

The IRR is pretty strict and sticks real close to its beliefs in regards to cosmetic surgery and whether a situation calls for a deduction or not. Ms. Gorgeous' only reason for surgery was to look better even though her career drastically improved after the surgery, however the surgery was still for pleasure. After studying this case and reading understanding the facts, Ms. Gorgeous is not entitled to a deduction and if she would try to deduct it I'm sure she would lose this case.

2. Income from Donation of Blood

Issue:

Does Samantha have to include the funds she receives from blood donation as gross income?

Facts:

Samantha is unemployed for some time and is very short on money

Finds out that the local blood bank has a sever shortage of her blood type

The blood bank is willing to pay $120 for each blood donation

Samantha gives blood twice a week for 12 weeks, 24 payments of $120 equaling $2,880

Statutory:

Section 61 of the tax code says that gross income is defined as:

“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services including fees, commissions, and similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property”

In the case of Green v. Comm (1980) the sale of blood plasma was considered gross income. Pretty much saying that a service was done, an exchange of goods and services was performed for money or to get money in return. I found this excerpt to better demonstrate what I'm talking about:

“Under the facts of this case, we find that petitioner's activity was the sale of a tangible product. From petitioner, who did little more than release the valuable fluid from her body, the plasma was withdrawn in a complex process by the equipment of the lab. Petitioner performed no substantial service. She was paid for the item extracted by the lab. Except for the unusual nature of the product involved, the contact between petitioner and the lab was the usual sale of a product by a manufacturer to a distributor or of raw materials by a producer to a processor. A tangible product changed hands at a price, paid by the pint.” вЂ" Green v. Commissioner

Discussion:

After reading the definition of gross income in Section 61 and hearing about previous cases regarding donation of blood, it seems like it is to be included in income. In fact it is a service being performed, you go to a blood bank and you're giving something up in return for cash. When you go you are getting paid by the pint pretty much, you are getting paid for your service or exchange.

Conclusion:

In conclusion, the facts and definitions and previous cases give me no other alternative but to say that the donation of blood is included in gross income, therefore allowing the deductions that need to be made come tax time.

3. Repaying Creditors of Prior Business

Issue:

Can Gary's real estate business deduct the expenses of repaying Escargot-to-Go's Creditors?

Facts:

Gary Owns his own real estate business and has a great reputation in the community for honesty and integrity

Gary was a 30% shareholder in an unsuccessful fast-food restaurant

The fast-food restaurant (Escargot-to-go) filed for bankruptcy

A lot of Escargot-to-go's creditors were also clients of Gary's real estate business

Gary's real estate business began to decline after the fast-food restaurant declared bankruptcy

Gary used profits from his real estate business to repay all of the creditors,

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