by Richard W. Millar, Jr.
February, when this is being penned, is known for Valentine’s Day, one of the few days in February which does not seem to be a court holiday. April, when this is likely to be published, is known for the day that taxes are due. While, because of the old saw, death and taxes have enjoyed a symbiotic relationship albeit a Danse Macabre, love and taxes seem wholly unrelated.
That is until now. As always, a case of point.
William G. Halby is a 79 year old retired lawyer. Actually he is a retired tax specialist. Notwithstanding his age, his medical deductions were both high and unusual. The deductions were flagged by the New York Division of Taxation and were selected for that dreaded word “audit.”
After audit, the Division of Taxation allowed only approximately $1,600 of the $105,000 claimed as a medical expense deduction for 2002. It allowed approximately $2,300 of the $102,000 claimed for 2003 and for 2004 allowed approximately $2,400 of the approximately $71,000 claimed. Those were, to utilize Shakespeare, the most unkindest cuts of all.
While it is often said that “you should quit while you are ahead,” it is sometimes equally true “you should quit while you are behind.” The former did not apply and Mr. Halby ignored the latter. After an adverse decision by an administrative law judge to which Mr. Halby excepted, the matter went before the State of New York Tax Appeals Tribunal. One of the first issues was a review of the administrative law judge’s denial of Mr. Halby’s request to have the record sealed or alternatively to allow him to proceed anonymously. While the reason for the request will become obvious momentarily, the administrative law judge denied it on the grounds that the Division of Tax Appeals had no authority to seal the record and the request to proceed anonymously collided with the “constitutional presumption of openness in judicial proceedings.” It did not help that the administrative law judge viewed this simply as an attempt to avoid embarrassment.
Well, it is safe to say that the claimed deductions were not routine. As many of you rightly suspect, tax appeal decisions are not part of my normal reading diet, much less column fodder.
The disallowed deductions for 2002 included $40,588 for “therapeutic sex” and $70,776 as “massage therapy to relieve osteoarthritis and enhanced erectile function through frequent orgasms,” $658 for medical books, videos, and periodicals and $2,173 for “pornography to enhance sexual performance in lieu of taking Viagra.”
That got my attention and I am not even an auditor.
The auditor, displaying a bureaucratic lack of humor, determined that expenses for sexual activities with prostitutes were: 1) not allowable medical expense deductions, 2) since prostitution is illegal in New York State, illegal treatments cannot be included in medical expenses, and 3) they were not substantiated with receipts. Apparently, unlike Eliot Spitzer, Mr. Halby did not use a credit card. The “no receipts” was also used to disallow the pornography expenses.
For 2003, the auditor disallowed $101,126 for sexual activities with prostitutes, $3,654 for pornographic expenses, $162 for “sexual performance aids,” and $431 for male enhancement pills. The auditor also disallowed $2,632 of interest expenses because interest expenses are not allowed as a medical expense. Apparently the taxpayer borrowed money to fund these “treatments.” (When I was telling one of my partners over lunch about this case and how condoms were included in the medical deduction, he said that Mr. Halby used the wrong category, he should have deducted them as “uniforms,” but I digress.)
Similarly, the auditor disallowed $65,934 of the $70,760 claimed as a medical deduction for the 2004 tax year.
In his brief, Mr. Halby stated that the disallowed expenses “represented cash payments to unlicensed care givers for whole body massages . . .” I have to give him credit. I don’t think the phrase “unlicensed care givers” would have occurred to me. I am not sure it would have occurred to the “care givers,” either. When the auditor requested receipts to substantiate the expenses, he was told that “no receipts existed because receipts are not generally provided by such providers, often due to a fear of prosecution, and that the names of the service providers listed in petitioner’s schedules may not have been the real names of such providers.” (I suppose the only exception would be unlicensed providers represented by [you fill in], but again I digress.)
I, for one, am delighted to see someone his age is out and about, so I offer my best wishes.
And many happy returns.
Mr. Millar is a member of the firm of Millar, Hodges & Bemis in Newport Beach. He can be reached at millar@mhblaw.net.