paying back medical ins from settlement

[schirallicpa]

Taxpayer was in an accident a few years ago while on the job. His medical insurance company paid his medical bills.  Then he received a large settlement in 2016 (tax free) and out of the settlement, he had to pay back the medical insurance company.  So, effectively, he took ownership of the money via the attorney, and the attorney wrote checks to med ins company from escrow.  

Is there a deduction for him for medical expense?

 

[jklcpa]

I didn't dig too far into the code, but I'd say no deduction based on this part of 213-1(a)(3)(i) where it says :

"For medical expenses paid (including expenses paid for medicine and drugs) to be deductible, they must be for medical care of the taxpayer, his spouse, or a dependent of the taxpayer and not be compensated for by insurance or otherwise."

https://www.law.cornell.edu/cfr/text/26/1.213-1

 

[Roberts]

JMO but you'd have to know what the court settlement states. Was part of the settlement based upon an agreement they would repay the insurance company? If that's the case, as was stated the bills were paid by someone else still. If it was a voluntary repayment, I think that's an arguable position.

Why did they pay back the insurance company?

edit: just looked it up - insurance companies can get repaid when the settlement includes their medical expenses. No deduction in my opinion.

[jklcpa]

Right, there is no deduction because the bottom line is that someone else footed the bill for the medical expenses because they were part of the settlement. 

Here's the finding of the tax court in one instance where someone tried this:  T.C. Memo 2012-43, Judith Gaerttner and Keith Williams

[schirallicpa]

I guess if I felt it would totally fly, I wouldn't have posted the question.  My gut feeling is "no".  I will see what the legal documents state, but I have a feeling they did not reimburse the medical ins just because it seemed like a nice thing to do.

thanks all.