Plastic Surgery as a Tax Deduction

February 14, 2013

Tax time is just around the corner and your patients may be asking if they can deduct their cosmetic procedure as a business expense. This does not come as a surprise for plastic surgeon Dr. Samuel Lin. Within his six years of practice at the Beth Israel Deaconess Medical Center in Boston, Massachusetts he has been asked many questions from his patients, but none as eccentric as “What is the likelihood of using or being able to deduct this as a business expense after receiving a procedure?”

A limited number of patients have been successful with deducting procedures. The argument can be made that improvement in physical appearance could be beneficial to a model or news anchor.  However, these arguments have been rejected by the IRS and by the courts as being too personal in nature and benefitting the taxpayer.  They are typically treated as a non-deductible expenses.

The most famous example is the “Chesty Love” case, also known as Hess v. Commissioner. In that case the taxpayer was an exotic dancer who underwent drastic breast augmentations.  The Court noted that the augmentation was to such an extreme degree (size 56N) that her breasts were essentially “stage props.”  Further, the augmentation was solely to benefit her career and that the augmentation caused severe personal and physical detriment to her.

New Jersey CPA Gail Rosen is very familiar with this case and says the Chesty Love case proved that you must satisfy two conditions to deduct cosmetic surgery as a business deduction. Number one, it is required as a condition of employment. Chesty Love proved that her income and career earnings increased with her augmented breasts. Two, that it is unsuitable for everyday use. Chesty Love’s extremely large breasts were unsuitable for everyday use and she was going to have them reduced as soon as her exotic dancing career ended.

“Being in business as long as we have, clients have asked about deducting various cosmetic surgery procedures. To deduct cosmetic surgery as a business deduction, they must pass the above two tests. When we tell them why their cosmetic is not deductible based on the tax law, none of them have not pushed any further (even the aggressive ones). Honestly, we have found that clients do listen. They want to pay the lowest taxes, but they do want to sleep at night,” Rosen said.

Before you tell your patients to go digging for their receipts, understand what the IRS labels as a deduction. Former US Tax Code attorney-advisor Jared R. Callister with Fishman, Larsen, Goldring & Zeitler, gives Plastic Surgery Practice readers a run-down of the current rules on the deductibility of cosmetic surgeries.

Medically Necessary v. Elective

In the context of cosmetic surgery, the question does not really turn on the distinction between being a medical necessity or being an elective procedure.  A different test applies Under the Internal Revenue Code (Code) a partial deduction is allowed for the expenses paid by a taxpayer for “medical care.”

However, the Code explicitly excludes cosmetic surgery from falling under the definition of medical care unless the surgery is one which can generally be considered corrective.  The Code defines “cosmetic surgery” as a 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.  For a procedure to be deductible, it must be necessary to ameliorate a deformity arising from or directly related to i) a congenital abnormality, ii) personal injury, or iii) a disfiguring disease.

“Thus, when a woman undergoes breast reconstructive surgery following a mastectomy the reconstructive surgery, although cosmetic and elective, would be a deductible medical expense.  However, a breast augmentation to simply improve one’s appearance would not be deductible,” Callister said.

In addition, Callister goes on to say there is precedent for the costs of skin removal to be deductible.  Thus, where a patient loses a significant amount of weight, lose-hanging excess skin can be removed and be deductible if the skin mass interferes with the patients daily life or is prone to infection and disease.  Again, as with most things, the exact facts and circumstances in this situation would matter.

Tax Deductions and Sex Changes

In the case O’Donnabhain v. Commissioner the taxpayer underwent hormone therapy, sex reassignment surgery and received a breast augmentation and attempted to deduct those expenses as deductible expenses for medical care under the Code.  The taxpayer argued that the procedures where necessary to treat a disease (specifically gender identify disorder or GID) and that these procedures should not be considered standard cosmetic surgery directed simply at improving one’s appearance.

Based on an analysis of various medical experts, the Tax Court ruled that GID is in fact a “disease” and that the hormone therapy and sex reassignment surgery were for the treatment of that disease.  The court placed great weight on the fact that the taxpayer’s physicians followed the Benjamin Standards of Care protocols in exacting detail before the procedures were implemented (in other words, the patient was actually being treated and didn’t seek out such surgery on whim).  The court, however, denied the deduction for the taxpayer’s breast augmentation on the grounds that the taxpayer failed to demonstrate how such a procedure was to treat GID as opposed to a typical cosmetic procedure meant to improve one’s appearance.

The O’Donnabhain case is the exception and not the rule when it comes to attempting to deduct what one would generally consider aesthetic surgery.

 Don’t Give Tax Advice

The big question that must be asked is whether the procedure is one that is “cosmetic” or one that “corrective”.  If a physician makes the determination that a “corrective” procedure should be done then that decision should be documented in the patient’s chart.   Do not be surprised if your patient wants documentation to support the deduction.

For the IRS, documentation is everything and creating a paper trail that clearly demonstrates facts in favor of the taxpayer’s position can be extremely beneficial down the road if there is an audit.  Callister says, if a physician makes a determination that a patient’s deviated septum should be corrected surgically in order to improve the patient’s respiratory problems, the physician should clearly make a note of such determination.  This corrective surgery, while having the side benefit of improving a patient’s appearance, should still be tax deductible.  Providing the patient with contemporaneous written documentation as to the reasons for the procedure will go a long way in helping the IRS reach the correct determination.

The bottom line is, do not offer tax advice to your patients.  You can be helpful to them by providing documentation.  If you have a patient question the deductibility of a procedure, you should simply instruct them to seek the advice of a competent tax advisor.