Cosmetic Surgery Case Summary
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, …show more content…
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.” – 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, shortly after his business began to pick up again
Statutory:
Section 162 and Section 1.162-1(a) of the Income Tax Regulations say:
“a deduction is allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. An expenditure must meet five conditions to qualify for a deduction, (1) an expense, (2) ordinary, (3) necessary, (4) paid or incurred during the taxable year, and (5) made to carry on a trade or business.
Discussion:
Based on Section 162 and Section 1.162-1(a), the payments made by Gary's real estate business to Escargot-to-go are fully deductible. Gary's real estate business started going down the tubes as soon as the other company he invested in went bankrupt, mainly because most of Escargot-to-go's creditors were clients of his real estate business. It was for the best for Gary to pay off those creditors because his business ran great solely on his good reputation, his honesty, and integrity in the community.
Conclusion:
In my conclusion and as an opinion, I believe that Gary knew he had to pay off the creditors in order to get his business running smoothly again. It was in the best interest for Gary and it was for the best of the company for Gary to pay off his debt to the creditors. I believe it was “necessary” and it was “made to carry on a trade or business”, with that being said I believe that Gary should have a deductible expense.
4. Basis for Inherited Property
Issue:
What is Robert's basis when he inherits the land from Mike?
Facts:
Robert owns some investment land with a basis of $1,000 and a fair market value of $22,000
Robert has the expectation that the land will continue to appreciate in value
By gifting the land to his sick uncle Mike, Robert plans to increase the basis of the land
Robert will then inherit the land when his sick uncle Mike dies (about 6 months)
Statutory:
Section 1014(e) states two things, they are as follows:
(A) “appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent's death”
(B) “such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor), the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.”
Discussion:
After reading what Section 1014(e) of the Internal Revenue Code says, the basis property would be what the adjusted basis of the property was following right after the death of the decedent. The basis would pretty much remain the same $1,000 once Uncle Mike passes away because that's what it was right before he would die, also Uncle Mike would not live longer than 6 months so it falls in the category of less than 1 year of what the IRC permits.
Conclusion:
In conclusion, the information portrayed and the discussion depict that pretty much there is no change in the basis from when Robert gifts the land to when he inherits it from Uncle Mike. Section 1014(e) says this and I say there is no benefit and that it is pointless for Robert to do this in a situation for a tax benefit because there is absolutely no increase in basis.
5. Sale of Property Held for Expansion
Issue:
Should Sheralyn treat the loss on the sale of her property as an ordinary or capital loss?
Facts:
Sheralyn and her brother owned and operated several warehouses in Georgia for the wholesale distribution of pecans and peanuts
Seven years ago they purchased another warehouse because of an increase in nut crop
Early last year they had plans drawn up for the warehouse and began getting bids from contractors
Just days before they were going to sign papers to begin construction, her brother was killed in an auto accident
She abandoned plans to construct and put the property for sale
The property was sole early this year at a $125,000 loss
Statutory:
The case of Carter-Colton Cigar Company, 9 T.C.
219 was a similar case to that of this, well not the same but a similar situation. This case was also about a purchase of a real estate with the intentions of business use. Plans were prepared, decisions have been made, everything was pretty much all good to go but was all abandoned and also sold at a loss. There were two sides to the story, one being from the petitioner who said the property was not a capital asset because it was “used in the trade or business” and the other side comes from the respondent who said it was a capital asset because it was “never actually used in the trade or business.” The bottom line is that the decision was favored for the petitioner because I quote from the case:
“when it was purchased for the business purpose of causing a building to be constructed thereon to be occupied by the petitioner corporation and steps were taken looking toward the consummation of that plan, to the extent of causing plans to be drawn and specifications to be prepared for use in building on that particular lot. It seems to us that at that time some use, normal for that state of proceedings, had begun to be made of the lot for the petitioner's business
purposes.”
Discussion:
Even though the case I presented isn't exactly the same, it is very similar to the one I am discussing...both cases include the buying of property for business use, they deal with preparing the property, signing papers, abandoning the project, and later selling for a loss. Sheralyn and her brother had plans for the warehouse and the acceptance of bids from contractors shows the dedication and that they had an effort in making it possible.
Conclusion: Sheralyn would claim the $125,000 as an ordinary loss. No gain was realized from the sale of the capital asset and there was some normal use of the property to make it to be business purposes. This mean that property was used in the trade or business and therefore is not a capital asset, the loss is ordinary not capital.
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, …show more content…
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.” – 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, shortly after his business began to pick up again
Statutory:
Section 162 and Section 1.162-1(a) of the Income Tax Regulations say:
“a deduction is allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. An expenditure must meet five conditions to qualify for a deduction, (1) an expense, (2) ordinary, (3) necessary, (4) paid or incurred during the taxable year, and (5) made to carry on a trade or business.
Discussion:
Based on Section 162 and Section 1.162-1(a), the payments made by Gary's real estate business to Escargot-to-go are fully deductible. Gary's real estate business started going down the tubes as soon as the other company he invested in went bankrupt, mainly because most of Escargot-to-go's creditors were clients of his real estate business. It was for the best for Gary to pay off those creditors because his business ran great solely on his good reputation, his honesty, and integrity in the community.
Conclusion:
In my conclusion and as an opinion, I believe that Gary knew he had to pay off the creditors in order to get his business running smoothly again. It was in the best interest for Gary and it was for the best of the company for Gary to pay off his debt to the creditors. I believe it was “necessary” and it was “made to carry on a trade or business”, with that being said I believe that Gary should have a deductible expense.
4. Basis for Inherited Property
Issue:
What is Robert's basis when he inherits the land from Mike?
Facts:
Robert owns some investment land with a basis of $1,000 and a fair market value of $22,000
Robert has the expectation that the land will continue to appreciate in value
By gifting the land to his sick uncle Mike, Robert plans to increase the basis of the land
Robert will then inherit the land when his sick uncle Mike dies (about 6 months)
Statutory:
Section 1014(e) states two things, they are as follows:
(A) “appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent's death”
(B) “such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor), the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.”
Discussion:
After reading what Section 1014(e) of the Internal Revenue Code says, the basis property would be what the adjusted basis of the property was following right after the death of the decedent. The basis would pretty much remain the same $1,000 once Uncle Mike passes away because that's what it was right before he would die, also Uncle Mike would not live longer than 6 months so it falls in the category of less than 1 year of what the IRC permits.
Conclusion:
In conclusion, the information portrayed and the discussion depict that pretty much there is no change in the basis from when Robert gifts the land to when he inherits it from Uncle Mike. Section 1014(e) says this and I say there is no benefit and that it is pointless for Robert to do this in a situation for a tax benefit because there is absolutely no increase in basis.
5. Sale of Property Held for Expansion
Issue:
Should Sheralyn treat the loss on the sale of her property as an ordinary or capital loss?
Facts:
Sheralyn and her brother owned and operated several warehouses in Georgia for the wholesale distribution of pecans and peanuts
Seven years ago they purchased another warehouse because of an increase in nut crop
Early last year they had plans drawn up for the warehouse and began getting bids from contractors
Just days before they were going to sign papers to begin construction, her brother was killed in an auto accident
She abandoned plans to construct and put the property for sale
The property was sole early this year at a $125,000 loss
Statutory:
The case of Carter-Colton Cigar Company, 9 T.C.
219 was a similar case to that of this, well not the same but a similar situation. This case was also about a purchase of a real estate with the intentions of business use. Plans were prepared, decisions have been made, everything was pretty much all good to go but was all abandoned and also sold at a loss. There were two sides to the story, one being from the petitioner who said the property was not a capital asset because it was “used in the trade or business” and the other side comes from the respondent who said it was a capital asset because it was “never actually used in the trade or business.” The bottom line is that the decision was favored for the petitioner because I quote from the case:
“when it was purchased for the business purpose of causing a building to be constructed thereon to be occupied by the petitioner corporation and steps were taken looking toward the consummation of that plan, to the extent of causing plans to be drawn and specifications to be prepared for use in building on that particular lot. It seems to us that at that time some use, normal for that state of proceedings, had begun to be made of the lot for the petitioner's business
purposes.”
Discussion:
Even though the case I presented isn't exactly the same, it is very similar to the one I am discussing...both cases include the buying of property for business use, they deal with preparing the property, signing papers, abandoning the project, and later selling for a loss. Sheralyn and her brother had plans for the warehouse and the acceptance of bids from contractors shows the dedication and that they had an effort in making it possible.
Conclusion: Sheralyn would claim the $125,000 as an ordinary loss. No gain was realized from the sale of the capital asset and there was some normal use of the property to make it to be business purposes. This mean that property was used in the trade or business and therefore is not a capital asset, the loss is ordinary not capital.