Tax Attorney Deducts Sex Workers as Medical Expense

When can you deduct money spent on prostitutes as extraordinary medical expenses in your income tax calculation? According to Tax Court Judge Joseph Goeke, never! 

Last September, an octegenarian tax attorney tried to claim prostitutes and various pornographic materials as "extraordinary medical expenses." William G. Halby of New York, 78, claimed that these expenses should have been deductible because of "the positive health effects of sex therapy." 

The court claimed that the expenses were not for "medical care" because they essentially were not for "the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body." Halby, however, pointed to magazines and research showing that sex therapy was beneficial.

The court wasn't moved. Amused, perhaps, but not moved. In addition, the court stated, Halby did not have any prescription from a doctor for the "therapy," nor did he ever discuss this "therapy" with his doctors.

The Court also noted the income tax rule that tax deductions are not allowed for any illegal operation or treatment. 

But, of course, we really don't need to get into the legality of prostitutes in New York. You don't need to be a lawyer to know the answer to that question. 

Interestingly, Halby did one thing right. He did meet the substantiation and recordkeeping requirements for deducting income tax expenses. The IRS requires contemporaneous documentation to substantiate the deduction and that, Halby had. Halby kept a journal of his encounters, writing the name of the "service provider" as well as the amount. 

Of course, it would be sheer folly for the Tax Court to assume that the prostitutes actually gave Halby any receipts. 

The Tax Court upheld the IRS's determination that disallowed the write-off of $120,000 for "service providers" along with $21,000 in back taxes and $4,000 in accuracy-related penalties. In the final paragraph of the Tax Court decision, the court calls Halby out:

"Petitioner has been an attorney for 40 years and specialized in tax law. Petitioner should have known that his visits to prostitutes in New York were illegal and that section 213, the regulations thereunder, and caselaw do not support his claimed deductions."

I can only imagine the look on Judge Goeke's face as he rendered his decision.

Related Resources

• Medical and Dental Expenses Publication 502 (irs.gov)
• T.C. Memorandum 2009-204
• Tax Center  (Findlaw.com)