## Facts

- A calendar-year individual taxpayer used a bank-issued credit card under an agreement requiring the taxpayer to pay the bank the amounts shown on periodic charge statements.
- Participating vendors accepted the card and documented purchases using charge drafts supplied under the card system.
- On November 15, 1976, the taxpayer charged $500 to the credit card to pay a hospital for medical services.
- The bank included the $500 charge on the taxpayer’s December 1976 statement.
- The taxpayer did not pay the bank until January 1977, when the taxpayer paid the statement balance in full.
- The question presented was whether the $500 charge was deductible as a medical expense on the taxpayer’s 1976 return.

## Issues

1. Whether a medical expense charged to a bank-issued credit card is an expense “paid during the taxable year” for purposes of I.R.C. § 213(a) in the year of the charge.
2. Whether the deduction must instead be taken in the year the taxpayer later pays the credit card issuer.

## Decision

- The IRS concluded that the $500 hospital charge made by bank credit card in 1976 was “paid” in 1976 and was includible in the taxpayer’s 1976 medical expense deduction under § 213(a).
- The later payment to the bank in 1977 did not control the timing of the § 213 deduction.

## Legal Principles

- I.R.C. § 213(a) allows a deduction for qualifying medical expenses paid during the taxable year, subject to statutory limitations.
- Treas. Reg. § 1.213-1(a)(1) permits a deduction only for medical expenses actually paid during the taxable year, regardless of the taxpayer’s accounting method; expenses incurred but not paid during the year are not deductible for that year.
- A bank credit card charge that results in payment to the provider and creates an enforceable debt from the taxpayer to the bank is treated as the equivalent of paying the expense with borrowed funds.
- When a deductible expense is paid with borrowed money, the deduction is taken in the year the expense is paid, not the year the borrowing is repaid.

## Conclusion

A taxpayer who pays a medical provider by charging the cost to a bank-issued credit card is treated as having paid the medical expense in the year the charge is made, because the provider is paid and the taxpayer becomes indebted to the bank; repayment of the card balance in a later year does not defer the § 213 deduction.


Rev. Rul. 78-39, 1978-1 C.B. 73 (1978)