Deductibility of Non-Professional Attendant Care Provided by a Family Member

Uncle Bill took a nasty turn on the forklift at work a couple of months back.  That Bill was in a motorized vehicle-related accident came as little shock to your delicate system, after all Bill was (and still is, to your knowledge) the only person in the history of Biddeford, Maine to ever get a DUI on a lawnmower, but he paid for the mayor’s peonies (scattered like the remnants of a ticker-tape parade across the mayor’s front lawn in the aftermath) and settled up with the court.

Notwithstanding having “reformed” himself, why he was allowed to operate a forklift at the tannery was beyond comprehension.  Though there were rumors of Bill uttering the phrase “ten bucks this’ll work” before crashing the forklift through the corrugated metal wall of the outbuilding, bringing the entire building down around him like a one-man demolition crew, nobody would swear to it.  (Bill had apparently made good on his offer and paid Harvey and Earl their ten dollars in exchange for their silence.)

Bill’s been out on workers’ compensation since the “accident,” and poor old Aunt Ethel has been taking care of the pathetic old man, who could barely take care of himself before the crash.  Though Ethel has engaged nurses to perform certain medical tasks, she has performed most of the care herself.  Though she initially did it out of a sense of uxorial duty, she’s tired of Bill’s shit and wants to get paid for her troubles.

Ethel, who has a jailhouse degree in taxes, believes that because the workers’ compensation payments to Bill are tax free, the payments for the care she gives Bill shouldn’t be taxable compensation to her.  She calls you out of the blue as you are deep in the middle of an involved and time sensitive FBAR issue, catching you a bit cold and totally off guard.

You tell her that this sounds a bit too good to be true (which is your polite way of telling your father’s sister that she’s out of her freaking gourd), but that you’ll have an answer for her by the end of the day.  You turn back to your actual billable work, but Ethel’s question bugs you whilst you are eating your questionable gas station sushi; so, you decide to give it a quick look-see.

Exclusion of Income to Bill

Though it is absolutely true that payments made to Bill are exempt income under IRC § 104(a)(1), as you suspected, payments made for Ethel’s care of her incompetent husband are income to her.  Even if the insurance company is not compensating Ethel directly for her “services,” the Eleventh Circuit and the Tax Court have found that non-professional attendant care provided by a family member is treated precisely like professional attendant care for tax purposes.

The Goldman Case

In the case of Goldman v. United States,[1] the Northern District of Georgia decided a case involving a wife who indirectly received payments for attendant care of her permanently disabled husband.  Like Ethel’s cockamamy plan to bend the system to her liking, the wife chose not to include the amounts received for her attendant services to her husband on her return, arguing that the payments were fully excludible under IRC § 104(a)(1).

The court found, however, that income is income, and exceptions to this rule are to be construed very strictly.  In Goldman the court looked at the doctrine of anticipatory assignment of income, which is to say that the husband anticipatorily assigned his workers’ compensation income to his wife, which to her surprise was strictly verboten.

The Baldwin Case

Eleven years later, the Tax Court revisited a very similar situation in the case of Baldwin v. Commissioner.[2]  As in Goldman the wife argued that the remuneration that she received should not be considered income under IRC § 104(a)(1).  The Tax Court looked to state (Michigan) law and found that the state law specifically provided for the compensation of family members for non-professional attendant care.  (Florida has a similar law, as discussed in Goldman.[3])

Because the law specifically provided that the compensation could be commensurate with that of a professional caregiver in the right circumstances, and in any event at least equal to the federal minimum wage, the Tax Court found that the compensation that Mrs. Baldwin received to care for her injured husband was likewise income to her under IRC § 61.

The Bannon Case

The Baldwin case relied heavily on Goldman and the previous Tax Court case of Bannon v. Commissioner,[4] in which a California statute allowed taxpayer to receive welfare benefits for providing nonmedical care to her disabled adult daughter, the rightful recipient of the tax-exempt welfare payments.  Even though the disabled daughter was the ultimate “beneficiary” of the welfare payments because she was being taken care of by the taxpayer, the Tax Court in Bannon found that the mother was likewise a beneficiary – however, in her case, the benefit was taxable income to her.  Similarly, in Goldman, even though the workers’ compensation checks were made out to Mr. Goldman, Mrs. Goldman’s bank account was the one that ultimately rose with each payment for Mr. Goldman’s care.

Conclusion and Aftermath

Thus, because the payments to Ethel would be for attendant and nursing care services rendered by her to Ol’ Bill, the amounts paid to Ethel will not constitute amounts “received under workmen’s compensation acts as compensation for personal injuries or sickness” pursuant to IRC § 104(a)(1) or amounts received by an employee “under a statute in the nature of a workmen’s compensation act” pursuant to Treas. Reg. § 1.104–1(b).

You call Ethel and report the news, and she curses at you like a sailor with Tourette’s. Once she calms down, takes a couple of puffs on her inhaler and cigarette (in that order), she thanks you for your time and telling you she’d take your advice “under advisement.”

You shake your head, wishing that she hadn’t recorded so many damn episodes of Perry Mason, but she has never been able to shake her ill-fated lust over Raymond Burr, the restraining order in favor of whom she keeps in her bedside table drawer as a reminder of their brief, but ultimately memorable (for both of them, you have to imagine) time together.


[1] 79 F.Supp.2d 1356 (N.D. Ga. 1998) aff’d. per curiam 196 F.3d 1262 (11th Cir. 1999).

[2] T.C. Memo. 2000-305, *5.

[3] 79 F.Supp. at 1360.

[4] 99 T.C. 59 (1992).

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