It's Time To Update Tax Law on Service Dogs

Two weeks ago I sent the following email to certain officials of the Treasury Department and the IRS. To those of my colleagues in the dog world who say that the deductibility of service dog expenses has not been a problem and that I should not flag the issue, I would respond with three additional points: (1) the IRS is aware that there are ways of getting service dog certifications (at least one website will send you an official-looking certification if you check some boxes online and give them a few hundred dollars); (2) many people whose disabilities are primarily mental are undoubtedly being advised by their accountants that their service dogs do not qualify under IRS parameters, and (3) modifications of IRS policy and procedures are often better designed if industry takes the initiative in describing the issues and presenting possible solutions. As to the first point, admittedly part of the Service's awareness comes from my conversations with officials. Although people generally get bogus certifications in order to get their dogs into restaurants, it would not take long for someone to realize that the maintenance expenses of a “service dog” are even better than having an additional dependent. As to the second point, I would note that current IRS provisions are, in terms of the service dog world, ancient and it is time for tax law in the area to catch up with developments that the Departments of Justice, Transportation, and Housing and Urban Development have been struggling with for years.

Anyway, here is what I sent:

TO: ____
The following summarizes my argument that psychiatric service dogs should be deductible medical expenses. I also believe that guidance could appropriately require a correlation between the functions of a service animal and the physical or medical condition of the individual being served.

The only regulation dealing with the deductibility of service dog expenses is Reg. 1.213-1, concerning the purchase of a seeing eye dog, and determining that such an expense is not to be disqualified because it is a capital expenditure. This was referred to in a number of revenue rulings—Rev. Ruls. 55-261, 57-461, 64-173, and 68-295—which explained that the acquisition, training, and maintenance of a dog purchased for a blind person, or a signal or hearing dog purchased for a deaf person, was a deductible expense. Publication 502 expands deductibility to include “a guide dog or other service animal to assist a visually-impaired or hearing-impaired person, or a person with other physical disabilities [emphasis added].” The problem with this statement is that it probably excludes a number of functions of service dogs that have been developed in the last 20 years. Presumably a seizure alert dog would be covered because a seizure would generally be regarded as a physical disability. But what about a dog trained to help an autistic child? Dogs have been trained to keep autistic children from engaging in self-destructive behaviors, from walking into traffic, and for other purposes that would not generally be regarded as responses to physical disabilities. The training for some of these dogs takes as long as that for guide dogs (up to two years). What about a dog that brings an Alzheimer’s patient home after he gets lost? The master realizes he is lost and says “Home,” and the dog takes him there, or perhaps does so when the person reaches a certain level of agitation. What about a dog that is trained to keep other people at a distance when the master is suffering a severe anxiety attack or which summons help when the master enters a catatonic state?

There are an estimated 9,000 dogs that are trained and in service to people who are neither blind nor deaf, and an increasing number of the persons served do not have physical disabilities, unless that term is defined so broadly as to include almost any condition that might have a physiological aspect inside the brain (e.g., schizophrenia or agoraphobia). It may be that these issues are often being interpreted broadly by agents in the field, but with the proliferation of service dog functions, some specificity seems to me to be called for. Is training required? Some hearing dogs are formally trained but others gain alerting skills as their masters gradually go deaf. Some seizure-alert dogs begin alerting behavior without having been trained as seizure-response dogs. The proliferation of service dog functions means that a simple requirement that a person be physically disabled will have the effect of both including some dogs that should probably not be deductible (because, e.g., the dog’s functions are not sufficiently correlated with the disability or are more tricks than functions), and excluding some dogs that should probably be deductible (because the condition, though psychological, is quite real and might otherwise have to be treated with massive pharmaceutical intervention, etc.).

The Department of Justice recently proposed substantial revisions to its general access rules and the Departments of Transportation and Housing and Urban Development have issued final regulations on service and assistance animals in the last two years, all of which raise issues that should be considered by the IRS. (For a discussion of the access rules, see the article I wrote with Fran Breitkopf, president of the Ulster Dog Training Club, that will appear in the Journal of Animal Law that is presently posted on the Michigan State University School of Law website (http://www.animallaw.info/articles/arusensminger2009.htm).) While the boundaries between what is deductible and what is not should, I think, bear some resemblance to boundaries described in the access rules, the verification procedures available to the IRS on audit would be very different. The other agencies have written rules that restaurants, transportation facilities, apartment buildings, and countless other types of business apply to verify that the individual’s claim to have a service animal is legitimate. The issue must often be resolved in a very public setting, such as the gate of a theater, and privacy issues become paramount. Inquiry as to the nature of the condition that justifies the services of the dog is largely precluded in the rules of the other agencies, but would not need to be so limited for the IRS.

Thank you for your consideration. – John