IRS Offers Deduction Guidance For Special-Education Expenses

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Dear Friend of ASO:

Information from the ASA Chapter Leaders Network regarding Deductions for Special-Education Expenses. FYI - Please share.

Sincerely,

Barbara C. YavorcikPresidentAutism Society of Ohio701 S. Main St.Akron, OH 44311(330) 376-0211fax: (330) 376-1226email: askASO@...home: byavorcik@...web: www.autismohio.org2005 ASO Bi-Annual Conference"Reaching Beyond the Horizon - Challenging the Autism Spectrum"Friday and Saturday, October 14-15, 2005 Kingsgate Marriott in Cincinnati, Ohio Please note: This is provided for information purposes only. The ASO does not endorse or recommend any providers, methodologies or services. Providing this information should not be construed as an endorsement by the ASO, either explicit or impiled.

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IRS Offers Deduction Guidance For Special-Education ExpensesJune 22, 2005; Page D3A recent ruling by the Internal Revenue Service may help ease the financialpain of families who shell out large amounts to pay for a child's specialeducation to overcome dyslexia and other learning disabilities. (See text ofthe <http://www.irs.gov/pub/irs-wd/0521003.pdf> ruling.1)The so-called private-letter ruling helps clarify the IRS view on a murkyarea: when special-education costs, such as tuition, meals and lodging, mayqualify as deductible medical expenses. A private-letter ruling applies onlyto the taxpayers who requested it and isn't supposed to be cited asprecedent. Even so, tax advisers say it is a useful illustration of theIRS's thinking -- and could come as a pleasant surprise to some parents.The ruling involved payments on behalf of two children diagnosed as having"disabilities caused by medical conditions, including dyslexia," that"handicap their ability to learn." The school offered the children a programof special education designed to help them deal with their "medicalhandicaps" and move on to study at a "regular school." (As is usual withprivate-letter rulings, names and further details of the taxpayers, thechildren and the school -- known only as "School X" -- weren't disclosed.)The taxpayers had asked the IRS to agree that they could deduct theirtuition because the school is a "special school." The IRS replied that isn'tthe standard under the law. Instead, it said: "Deductibility of tuitiondepends on exactly what the school provides an individual because a schoolcan have a normal education program for most students, and a specialeducation program for those who need it. Thus, a school can be 'special' forone student but not for another."[Tax Facts]<http://online.wsj.com/public/resources/images/PJ-AF275_TAXFACTS06212005201206.gif> The IRS concluded that both children were attending School X "principally toreceive medical care in the form of special education" -- and that theirtuition was, indeed, deductible as a medical expense.That is an important nuance, tax specialists say. "The gist is that a schooldoesn't have to be attended exclusively by children with learningdisabilities in order for tuition to be deductible," says Nissenbaum,national director of personal income-tax planning at Ernst & Young. Instead,tuition and other costs may be deductible "for just those learning-disabledchildren who participate in a special program in a regular school -- as longas participation in that program is their principal reason for attending theschool."The IRS ruling emphasized several other points. For example, a physician orsome other "qualified professional" must diagnose a "medical conditionrequiring special education to correct the condition" in order for theeducation to be considered medical care. While the school itself doesn'thave to employ physicians to provide the special education, it must have"professional staff competent to design and supervise a curriculum providingmedical care." Furthermore, conquering the learning disabilities "must be aprincipal reason for attending the school, and any ordinary educationreceived must be incidental to the special education provided."The IRS offers general tips in its Publication 502 on medical expenses, buteven a close read of the publication could leave parents ofspecial-education children puzzled over how much, if any, of theirspecial-education payments qualify as medical expenses.Reminder: Medical expenses generally are deductible only to the extent theyexceed 7.5% of your adjusted gross income. Even if the expenses don't exceedthe limit, you still may be able to pay them with pretax dollars throughyour employer's flexible-spending account, Mr. Nissenbaum says.