Tuition Expense Allowed as a

Tax Deduction for Special Needs Child

By: Jane-Marie Schaeffer, Esq.

In a recent private letter ruling, the Internal Revenue Service (IRS) allowed the parents of a special needs child to deduct the costs of attending a specialized school as a medical expense deduction on the parent’s income tax return.  This can provide a significant benefit to parents of special needs children as the costs of specialized schools can place a financial burden on the family.  This article will discuss how to achieve a medical deduction for the costs of tuition at a special school, and other planning considerations for parents of special needs children.

In Private Letter Ruling 200729019, the parents of a 17 year old child with developmental disorders and learning disabilities enrolled the child in a school which provides support to children with similar disorders to achieve the skills necessary to complete college or vocational school.  The special school provides support, counseling and services to children who are enrolled in neighboring colleges and technical schools, to assist the child in succeeding at the college.  The special school charges an annual tuition, which is separate from the college tuition. 

The medical expense deduction is allowed under §213 of the Internal Revenue Code.  While ordinary costs of education are not included as a medical expense, there is an exception for the cost of attending a school for the physically or mentally handicapped, if the principal reason for attending the school is to alleviate such condition.  The key to the deduction is the substantive content of the curriculum at the special school.  The school may offer ordinary education as part of its curriculum, but only if it is incidental to the primary purpose of allowing the child to overcome a handicap.

In a prior ruling, the IRS has allowed a deduction for the cost of a mentally handicapped child’s participation in a specially designed, self-contained course designed to meet the child’s needs.  Rev. Rul. 70-285.  Another ruling held that the costs of a program designed to help children with severe learning disabilities resulting in reading difficulties, was deductible.  Rev. Rul. 78-340.  In addition, the tax court ruled in Greisdorf v. Comm’r, 54 T.C. 1684 (1970) that a deduction was allowed for the costs paid for a school for children with emotional difficulties.

Based on the prior cases and rulings, the IRS concluded in the case at hand, that the primary purpose for the child to attend the Special School is to overcome her diagnosed medical conditions, and therefore the IRS allowed her parents to deduct the tuition as a medical expense.

This ruling offers a great planning opportunity for parents of special needs children.  Other planning considerations for parents of a special needs child, that they may not be aware of, are:

• Naming a guardian for the special needs child
• Establishing a supplemental needs trust for the child.  A supplemental needs trust allows the child to continue to receive government benefits, while using the funds in the trust to provide supplemental care.
• Purchasing a life insurance policy and naming the supplemental needs trust as the beneficiary of the policy as one way of providing financially for the child in the future, upon the parents’ death.  
• Establishing a supplemental needs trust in the parents’ wills as a way of leaving assets to the child. 

At Pierro Law Group, LLC, we provide counseling and advice to parents of children with special needs.  Please contact us at 518-459-2100 for more information or to schedule an appointment with one of our attorneys.

If you have any questions about the matters discussed in this e-letter, please contact Jane-Marie Schaeffer at (518) 459-2100.  Prior Tax Planning E-Letters may be accessed at www.pierrolaw.com.

**To the extent the preceding text contains an opinion on one or more Federal tax issues, such opinion was not written to be used and cannot be used for the purpose of avoiding penalties.  If you would like a written opinion on the Federal tax issues addressed in this email, upon which you can rely for the purpose of avoiding penalties, please contact our office.