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Excerpts from IRS Helps Smokers Kick the Habit

By Mark L. Silow, Legal Intelligencer [07/13/99]

Smoke-Cessation Prgorams Are Now Deductible Medical Expenses

I recently issued Revenue Ruling 99-28, the Internal Revenue Service has reversed its earlier position by holding that amounts paid by individuals for participation in smoking-cessation programs or for prescribed drugs designed to alleviate nicotine withdrawal constitute expenses for medical care that are deductible under the Internal Revenue Code.

This awakening comes almost 40 years after the Surgeon General reported on the harmful health consequences of smoking and more than 10 years after the Surgeon General concluded that nicotine is an addictive drug. Under Code Section 213(a), a deduction is allowed for expenses incurred for medical care of an individual, the individual's spouse or a dependent, if uncompensated by insurance, to the extent the expenses exceed 7.5 percent of the individual's adjusted gross income. Moreover, Code Section 105(b) excludes from gross income amounts paid to an employee to reimburse him or her for the cost of medical care for the employee or the employee's spouse or dependents. For purposes of the exclusion under Code Section 105(b), the definition of "medical care" is the definition contained in Code Section 213. Code Section 213(d)(1) defines medical care as the diagnosis, cure, mitigation, treatment or prevention of disease. A deduction is also allowed for any amounts paid for medicine or a drug, but only if the medicine or drug is a prescribed drug or insulin. The regulations promulgated under Code Section 213 caution that an expense that is merely beneficial to the general health of an individual is not deductible as an expense for medical care.

Similarly, Code Section 262 provides that, generally, no deduction is allowed for "personal" expenses, which have been held to include health club dues and the cost of fitness equipment not required to cure a specific injury or ailment. The IRS first addressed the issue of the deductibility of expenses associated with programs to stop smoking in Revenue Ruling 79-162. In that ruling, the IRS held that the cost of an individual's participation in a program to stop smoking is not deductible under Code Section 213 on the basis that a program to stop smoking is not intended to cure any specific ailment or disease, but is intended only for the purpose of improving the individual's general health and sense of well being.In reaching this conclusion, the IRS compared the benefits of a smoking-cessation program to the fees paid to a health club "where the taxpayer takes exercise, rubdowns, etc." Based on this comparison, the IRS' decision held that the cost of a smoking-cessation program was personal, not medical, and therefore deductibility was precluded under Code Section 262.

The ruling denies the deductibility of the cost of nicotine gum and transdermal patches which are available without a prescription.A cynic might argue that because medical expenses are deductible only to the extent they exceed 7.5 percent of adjusted gross income and the cost of smoke cessation programs are unlikely to exceed such amount for most individuals, no tax benefit will be derived from Revenue Ruling 99-28, and only those catastrophic medical expenses which are the consequence of smoking will result in meaningful deductions. However, the recognition of smoke-ending programs and treatments as elements of medical care will make such expenses eligible for reimbursement under most medical-expense reimbursement plans, and this could assist in the current national campaign to curtail smoking.

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