The opinion is fascinating. The problem is that Halby’s use of prostitutes was neither doctor ordered nor legal in New York.
In the tax court’s opinion, Judge Goeke notes that Halby was as meticulous as he was amorous:
During 2004 and 2005 petitioner frequented prostitutes in New York. Petitioner did not visit these prostitutes as part of a course of therapy prescribed by his doctor, nor did petitioner ask his doctor to prescribe any sort of sex therapy. Petitioner kept track of these visits in a journal. The journal included the date, the name of the “service provider”, and the amount. Petitioner did not discuss these visits with his doctors afterwards to determine their impact on his health.
During 2004 and 2005 petitioner purchased pornography and books and magazines on sex therapy. Petitioner also recorded the dates and amounts of the purchases in his journal.
In a remarkably deadpanned holding, the judge concludes:
We agree with respondent that petitioner is not entitled to deduct the amounts at issue. Patronizing a prostitute is illegal in the State of New York. See N.Y. Penal Law sec. 230.04 (McKinney 2008). N.Y. Penal Law sec. 230.02 (McKinney 2008) provides that a person is patronizing a prostitute when he:
(1) Pursuant to a prior agreement pays a fee for another person’s having engaged in sexual conduct with him; (2) agrees to pay a fee pursuant to an understanding that in return such person or a
third person will engage in sexual conduct with him; or (3) solicits or requests another person to engage in sexual conduct in return for a fee. Section 1.213-1(e)(1)(ii), Income Tax Regs., provides that a taxpayer is not entitled to a deduction for any illegal operation or treatment. Petitioner’s payments to various prostitutes were personal expenses not prescribed by a doctor and not intended to treat a medical condition. Petitioner is not entitled to deductions for these amounts.
Petitioner is likewise not entitled to deductions for amounts paid for books and magazines on sex therapy and pornography. The purchases were not for the treatment of a medical condition but were instead personal items. Sec. 1.213- 1(e)(1)(ii), Income Tax Regs.
This holding does raise the interesting question of whether tax deductions in Nevada (where prostitution is legal) can be deducted with a doctor’s note. Likewise, does this mean that a firm retreat or client evening at the Mustang Ranch can be deducted as a business expense?
For the 2002 tax year, petitioner claimed a medical expense deduction of $105,271.00, after the 7.5% limitation on federal adjusted gross income (AGI). Included among the medical expenses claimed was an expense of $111,364.00, of which $40,588.00 was categorized on an attachment to Schedule A on petitioner’s federal return as “therapeutic sex”(1) and $70,776.00 as “massage therapy to relieve osteoarthritis and enhance erectile function through frequent orgasms.” Also included as part of the medical expense deduction claimed were the sums of $658.00 for medical books, videos and periodicals and $2,173.00 for “pornography to enhance sexual performance in lieu of taking Viagra.”
Oh, one last fact of interest. Halby is 77.
Halby was former counsel for the Equitable Life Insurance Society of the United States and reportedly continued to work as counsel with McMillan, Constabile, Maker & Perone. He may consider forming a new law firm over in New Jersey with Harold Hoffman. The firm of Hoffman and Halby might be small, but the annual firm retreat would be something not to be missed.
The recent opinion was first reported by taxprof (an excellent site run by Professors Paul Caron).