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I have a client who just had a baby with Downs Syndrome, the baby has medical problems. A bank account was setup after people in the community started donating money to be used for the baby's medical expenses. Does the parents have to claim this as income since it will be used for the baby's medical expenses?
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No, gifts are not income. Yes, they can deduct the amounts received anyway as medical expenses, if that is how they are used. (See the 2010 Tax Court decision, Judith Lang, T.C. Memo. 2010-286.)
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Code Section 102
(a) General rule
Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.
If the facts and circumstances are such that the funds received are in the nature of gifts, they not NOT taxable. The usage (for medical expenses) is not relevant in this determination. E.g. if the funds are used for clothing or education, the receipts are still non taxable..
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So they do not have to include this on their taxes?
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No, they don’t have to report it
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