Research Problem 1. Ruby incurred substantial medical expenses ($32,000) and real estate taxes on her residence ($8,000). Because she did not have the funds to pay these expenses, she asked her mother, Susan, to help her out. Susan made the payments directly to Ruby’s creditors.

On her 2012 Federal income tax return, Ruby deducted $24,500 ($32,000 – 7.5% of

$100,000 AGI) of medical expenses and $8,000 of real estate taxes. The IRS disallowed these itemized deductions on Ruby’s tax return. According to its position, because Ruby did not actually pay these expenses, she is not entitled to any deductions.

Evaluate the positions taken by Ruby and by the IRS.