July 2003

Deduction or Distraction? The U.S. Treasury’s Stance on Obesity

By Clyde L. Posey

Revenue Ruling 2002-19 revolutionizes the U.S. Treasury’s philosophy on a critical health issue in the United States. According to April 16, 2002, statistics of the U.S. National Institute of Diabetes & Digestive & Kidney Diseases (NIDDK) of the National Institutes of Health, 59.4% of all U.S. adult men age 20 and older are overweight, and 19.5% are classified as obese. According to the NIDDK, obesity for adults is defined as a body mass index (BMI) of 30 or greater. (An individual’s BMI is calculated by dividing weight in kilograms by height in meters squared.) In addition, 50.7% of U.S. adult women age 20 and older are overweight, and 25% are obese. To emphasize the seriousness of the epidemic proportions of the malady, 97.1 million U.S. adults—or 54.9%—are overweight or obese.

Even more alarming is the number of U.S. children who are overweight and on their way toward obesity. According to the American Obesity Association, from 1976 to 1980, only 7% of children age 6 to 11 were obese. In 1999, 13% were obese. In a very short time, the problem has almost doubled.

The economic and social implications of these trends are staggering. Obesity can lead to severe medical challenges and complications, including diabetes, heart disease, hypertension, and stroke, as well as cancers of the colon, rectum, prostate, breast, gallbladder, uterus, cervix, and ovaries.

With those factors in mind, the U.S. Treasury Department has changed its policy in Revenue Ruling 2002-19 and will now allow deductions for this malady in certain instances.

IRC section 213(d)(1)(A) states:

The term “medical care” means amounts paid—

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body … .

Because obesity is a serious medical condition affecting a large percentage of the U.S. population, the phrase “treatment or prevention of disease” in IRC section 213 (d)(1)(a) should be sufficient authorization for a medical deduction if the “treatment” was not designed to maintain a person’s general health or appearance. The IRS, however, did not interpret the law in that way. Formerly, taxpayers could deduct the costs of weight-loss programs only if the programs were in conjunction with treatment of another disease, a position confirmed in Revenue Ruling 2002-19 in the treatment of hypertension for the case of “Taxpayer B,” who was not also diagnosed with obesity.

Treasury Regulations Section 1.213-1(e)(1)(ii) states:

[A]n expenditure which is merely beneficial to the general health of an individual, such as an expenditure for a vacation, is not an expenditure for medical care.

In other words, medical expenditures that are merely beneficial to the general health of an individual are nondeductible. Revenue Ruling 2002-19 really did not change the IRS’ position.

Part of Revenue Ruling 55-261 set the stage for the nondeductibility of weight control or reducing medications. That ruling stated:

[I]n special cases, depending upon the particular facts presented, if the prescribed food or beverage is taken solely for the alleviation or treatment of an illness [emphasis added], is in no way a part of the nutritional needs of the patient, and a statement as to the particular facts and to the food or beverage prescribed is submitted by a physician, the cost of such food or beverage may be deducted as a medical expense. Where the special food or beverage is taken as a substitute for food or beverage normally consumed by a person and satisfies his nutritional requirements, the expense is a personal expense within the meaning of section 24(a)(1) of the Code; but where it is prescribed by a physician for medicinal purposes and is in addition to the normal diet of the patient, the cost may qualify as a medicinal expense under section 23(x).

This ruling was important for two reasons:

Revenue Ruling 79-151 considered Taxpayer A, an individual, who was participating in a “weight reduction program,” the objective of which was not the curing of any specific ailment or disease, but rather to improve A’s appearance, general health, and sense of well-being.

Revenue Rulings 55-261 and 79-151 made most food substitutes nondeductible. Moreover, qualifying treatments had to be for a specific disease or illness, and being overweight or obese was not defined as a disease or illness. Furthermore, the rulings disallowed weight maintenance or reduction programs that were designed to promote a person’s general health or appearance. Nonetheless, these decisions set the stage for Revenue Ruling 2002-19.

Revenue Ruling 2002-19 changed the philosophy of the IRS by allowing weight-loss program deductions for obesity and as a treatment for hypertension. The facts of the ruling were as follows:

Taxpayer A is diagnosed by a physician as obese. A does not suffer from any other specific disease. Taxpayer B is not obese but suffers from hypertension. B has been directed by a physician to lose weight as treatment for the hypertension.

A and B participate in the X weight-loss program. A and B are required to pay an initial fee to join X and an additional fee to attend periodic meetings. At the meetings, participants develop a diet plan, receive diet menus and literature, and discuss problems encountered in dieting. A and B also purchase X brand reduced-calorie diet food items. Neither A’s nor B’s costs are compensated by insurance or otherwise.

Revenue Ruling 2002-19 for the first time allows deductions for certain medical treatments for obesity, and also for weight-loss treatments in connection with the treatment of other diseases.

“Weight-loss program X” in the facts of 2002-19 could refer to popular programs such as Weight Watchers. The cost of those programs should be deductible if they are incurred for obesity or weight reduction connected with the treatment of another disease. The ruling is silent, however, on whether the costs would be deductible if a taxpayer used another program format.

Also, there are other weight control or reduction techniques. For example, if a physician believes that exercise is a critical factor for a specific obese patient’s weight loss, would the cost of a health club membership or other exercise program, such as a senior citizens exercise class, be deductible as a medical expense? Again, Revenue Ruling 2002-19 offers no specific guidance.

Also unaddressed is whether any prorations are necessary. What would be the allowable deduction in the following scenario: A cash-basis patient was diagnosed as obese in January 2002, began a weight-loss program in that month, and continued the program for the entire year. Subsequently, it was discovered that the patient’s condition improved from obese to overweight on October 1, 2002. Would the treatment for the entire year be deductible, or would the deduction be prorated for three-quarters of a year? Revenue Ruling 2002-19 provides no guidance.

Revenue Ruling 2002-19 does not cover the issue of how obesity is to be specifically defined. Is there any leeway within the current medical definition of obesity? For example, would a person two pounds below the precise definition of obesity have to gain two pounds before being able to deduct treatment costs? Professional medical opinion could run counter to the judgment of an IRS auditor.

In light of the near-epidemic problems obesity presents to society, Revenue Ruling 2002-19 represents a significant step forward. Nevertheless, more guidance and clarification from the IRS are needed at this time.

Clyde L. Posey, PhD, CPA, is a professor in the school of professional accountancy of the college of administration and business, Louisiana Tech University. The author appreciates the thoughtful suggestions made by Cindy Wink, graduate student, Louisiana Tech University.

Edwin B. Morris, CPA
Rosenberg Neuwirth & Kuchner

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