Issues

Medical or Casualty-Loss Deduction Denied? How To Fight Back

The IRS disallowed your medical bills or your storm-loss deduction. Both are Schedule A fights over an AGI floor and proof—here's how each works.

You took a big deduction on Schedule A—your year of medical bills, or the damage to your home after a storm—and the IRS said no. The number that was supposed to lower your tax is now part of a Notice of Deficiency, and the letter makes it sound like the matter is closed.

It is not. Medical expenses and personal casualty losses are two of the most commonly disallowed itemized deductions, and they get disallowed for reasons that are usually fixable—or, just as often, for a reason that means the deduction never would have helped you in the first place. Both deductions share the same shape: a large number on Schedule A, an AGI floor that quietly eats the first chunk of it, a heavy burden to prove every dollar, and the threshold question of whether you even benefit from itemizing at all. Understanding that shared shape is the first step to knowing whether you have a fight worth having.

This is the substantive merits guide to two deductions at once: medical and dental expenses under IRC § 213, and personal casualty and disaster losses under IRC § 165. They are paired because the posture is identical, but the rules diverge sharply, so each gets its own section below. This article does not re-teach the general recordkeeping and reconstruction machinery that the substantiation siblings already own—How To Prove Your Business Expenses to the IRS and How To Prove Your Charitable Deductions. What is distinct here is the specific law of § 213 and § 165: the floors, what actually counts, the valuation fights, the insurance rule, and the disaster-only limit that decides whether a casualty is deductible at all.

First Reality Check: Do You Even Benefit From Itemizing?

Before the floors, before the receipts, before any of it, there is a gate that stops a lot of these disputes cold. Both deductions live on Schedule A, which means they only help you if your total itemized deductions exceed the standard deduction. If your mortgage interest, state taxes, charitable gifts, medical excess, and casualty loss—added together—come to less than the standard deduction, you take the standard deduction and the medical or casualty number does you no good at all.

The standard deduction is large. The 2017 Tax Cuts and Jobs Act roughly doubled it, and the 2025 law (the One Big Beautiful Bill Act, Pub. L. 119-21) kept it elevated and indexed for inflation. Check the current year's figures on the IRS standard-deduction page rather than relying on a number you half-remember—but the point is that the bar is high, and a single deduction often cannot clear it on its own.

There is one important exception on the casualty side: a qualified disaster loss (defined narrowly, and explained below) can be added on top of the standard deduction—a non-itemizer benefit. But that is the exception, not the rule. For an ordinary medical deduction or an ordinary federally-declared-disaster loss, the itemizing test applies in full.

So the very first thing to do—before you spend a weekend assembling proof—is confirm that your Schedule A total beats the standard deduction. If it does not, the disallowance changes nothing about your tax, and the fight is not worth having.

The Burden Is on You—And the Floor Comes First

The spine of both fights is the same, and it is worth stating plainly because it shapes everything else.

Deductions are, in the words the courts have used for almost a century, a matter of legislative grace: Congress did not have to allow them, and a taxpayer who claims one bears the burden of proving entitlement to it and of keeping records to back it up (New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934); INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992)). In Tax Court, the IRS's determination in the Notice of Deficiency is presumed correct, and the petitioner carries the burden of showing it is wrong (Tax Court Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933)). Your tax return is not self-proving—it is a statement of your claim, not evidence that the claim is right.

IRC § 7491 can shift that burden to the IRS, but it almost never rescues a substantiation case: the shift requires that you produced credible evidence, met the recordkeeping rules, and cooperated. No records means no shift. That is the same lesson the business-expense and charitable-deduction articles drive home, and it applies identically here.

The wrinkle unique to these two deductions is the AGI floor. Even when you prove every dollar, the law lets you deduct only the part above a percentage of your adjusted gross income—7.5% for medical, 10% (plus a $100 per-event reduction) for casualty. A great many disallowances are really floor problems: the deduction was real, but too small to clear the floor, so it produces nothing. Keep that in mind as you read each section, because the floor math is often the whole ballgame.

Part One: Medical and Dental Expenses (§ 213)

The 7.5%-of-AGI Floor—And It Is Permanent

Start with the rule that catches the most people. Under § 213(a), you may deduct unreimbursed medical and dental expenses only to the extent they exceed 7.5% of your adjusted gross income. The first 7.5% of AGI produces zero deduction. Only the excess counts.

There is persistent confusion about whether this floor is 7.5% or 10%, so be clear: it is 7.5%, and that is permanent. The Affordable Care Act once pushed the floor to 10%, but the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) substituted 7.5% for 10% for all tax years beginning after December 31, 2020, and removed the temporary structure. There is no scheduled reversion to 10%. The 7.5% floor is simply the law now.

Work the math, because it is where most medical disputes begin. At $60,000 of AGI, 7.5% is $4,500. That means the first $4,500 of medical bills you paid does nothing for you—it is absorbed by the floor. If you paid $8,000 in qualifying medical expenses, only $3,500 ($8,000 − $4,500) is deductible, and even that only helps if your Schedule A total beats the standard deduction. A taxpayer who deducts the full $8,000 has overstated the deduction by $4,500 before anyone even looks at the receipts.

One more timing rule that drives disputes: medical expenses are deductible in the year you pay them, not the year you were billed or treated. A bill you charged to a credit card counts in the year of the charge; a check counts in the year you mail or deliver it. Prepaying next year's care generally does not accelerate the deduction.

What Actually Counts as "Medical Care"

The Code defines "medical care" in § 213(d)(1), and the definition is broad but bounded. It covers amounts paid:

for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body;
for transportation primarily for and essential to that medical care;
for qualified long-term care services; and
for insurance covering medical care, including most health-insurance premiums.

The limiting principle, from Treasury Regulation § 1.213-1(e)(1)(ii), is that deductible care is "confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness." An expense that is "merely beneficial to the general health of an individual"—the regulation's own example is a vacation—does not count.

A few things people miss in both directions:

Insurance premiums count, and that includes Medicare premiums (Part B, Part D, and Medicare Advantage) and most health-insurance premiums you pay with after-tax dollars. For retirees, this is a frequently-overlooked legitimate deduction.
General-health and cosmetic items do not. Gym and health-club dues, vitamins, nutritional and herbal supplements, nonprescription drugs (other than insulin), and similar "general health" purchases are not deductible unless a physician recommends them as treatment for a specific medical condition the physician has diagnosed. That physician-direction requirement is the hinge for every borderline item.
Whose expenses. You can deduct medical expenses you pay for yourself, your spouse, or a dependent, where that person was your spouse or dependent either when the care was provided or when you paid for it. (If a dependent dispute is also in play, the qualifying-person rules live in How To Prove Your EITC and Dependent Claims to the IRS.)

The IRS's plain-English catalog of what does and does not qualify is Publication 502—the single most useful reference for sorting your bills before you respond.

The Reimbursement Trap—Don't Count a Dollar Twice

§ 213(a) allows a deduction only for amounts "not compensated for by insurance or otherwise." This is the source of a whole category of guaranteed disallowances, and it is entirely avoidable.

Insurer-paid amounts. If your insurance company paid part of a bill, you cannot deduct that part. Only your out-of-pocket share counts.
HSA, FSA, and Archer MSA double-counting. You cannot deduct an expense you paid with tax-free money from a health savings account, flexible spending arrangement, or medical savings account—you already got the tax benefit once. A taxpayer who ran $3,000 of expenses through an FSA and deducted the same $3,000 on Schedule A has a disallowance the IRS will find every time.
Excess reimbursement. If reimbursement exceeds your expenses, you may actually have to include the excess in income, and damages designated for medical costs reduce the deduction.

Before you fight a medical disallowance, recompute your deduction with every reimbursed and tax-free-funded dollar stripped out. If the double-count is the problem, the IRS is right, and the energy belongs in the off-ramp section below rather than in a losing dispute.

The Borderline Fights: Home Improvements, Travel, and Mileage

Three categories generate most of the genuine medical merits disputes—the ones where reasonable people disagree and proof decides the outcome.

Capital improvements to your home. This is the most misunderstood medical deduction. A permanent improvement made for medical care—say, installing equipment to manage a diagnosed condition—is deductible only to the extent its cost exceeds the increase in your home's value (Treasury Regulation § 1.213-1(e)(1)(iii)). The regulation's own example: an elevator installed for a heart patient costs $1,000 but raises the home's value by $700, so only $300 is a deductible medical expense. Publication 502 turns this into Worksheet A—cost minus value increase equals the medical expense; if the value increase equals or exceeds the cost, you get nothing.

The burden to prove the improvement did not increase value—or by how little—falls on you, which usually means a before-and-after appraisal. That valuation number is the entire fight.

There is a friendlier sub-rule. Certain disability-access modifications are treated as not increasing the home's value, so their full cost counts: entrance and exit ramps, widening doorways and hallways, installing bathroom grab bars and railings, lowering cabinets, adding porch lifts, modifying stairways, and grading the ground for access. (An elevator, by contrast, generally does add value, so it falls back to the excess-over-value rule.) Only "reasonable costs to accommodate a home to your disabled condition" qualify—aesthetic or architectural upgrades do not. And the operation and upkeep of a medically necessary improvement (like the electricity to run that elevator) qualify as medical expenses going forward, even if little or none of the original cost did.

Travel and lodging. Transportation essential to medical care is deductible, but lodging is capped hard: under § 213(d)(2), lodging while away from home primarily for and essential to medical care is limited to $50 per night, per person, with no deduction for meals. A parent staying overnight with a sick child can count up to $100 a night (two people), but the lodging cannot be lavish and there can be "no significant element of personal pleasure, recreation, or vacation."

Mileage. Out-of-pocket car costs for medical travel—gas and oil—are deductible, or you can use the IRS medical mileage rate plus parking and tolls. That rate changes every year, so check the current year's figure in Publication 502 rather than treating an old number as fixed; for 2025, it is 21 cents per mile. (Depreciation, insurance, and general car repairs are never deductible as medical travel.)

Cosmetic surgery is barred. Under § 213(d)(9), "cosmetic surgery or other similar procedures" are not medical care—face lifts, hair transplants, electrolysis, liposuction—unless necessary to correct a deformity from a congenital abnormality, an injury from an accident or trauma, or a disfiguring disease. (Post-mastectomy reconstruction, for instance, qualifies.)

A Medical Case Study: What "Prove Every Dollar" Looks Like

A pro se case shows the whole pattern in miniature. In Jermihov v. Commissioner, T.C. Summ. Op. 2014-75, the IRS disallowed a married couple's Schedule A medical deductions for lack of substantiation, and they took it to Tax Court themselves as a small "S" case.

They did not lose everything. The court allowed $9,300 of medical expenses—$6,300 for their son's psychotherapy for a diagnosed condition and $3,000 for the husband's physician-recommended acupuncture to manage cancer-treatment pain—which, in the court's words, "constitutes a medical expense under section 213(a)." These were legitimate, physician-connected treatments, and the court said so. But the allowance came with two conditions that define the medical fight: the proven amounts were still subject to the 7.5% floor, and everything else they claimed was denied because they offered no persuasive proof of it. The court pointedly noted they had given no reason they could not have obtained records from the insurer or the providers in the eleven months before trial.

(Because Jermihov is a Summary Opinion, the law says it "shall not be treated as precedent" for any other case—it is a useful illustration of how the rules play out, not authority you can cite to bind a court.)

The lesson is the medical fight in one sentence: physician-connected care qualifies, but you must prove each dollar, the 7.5% floor still bites what you prove, and a return form is not evidence. When you can document a treatment and tie it to a diagnosis, you are on solid ground. When you cannot, the deduction disappears.

Part Two: Personal Casualty and Disaster Losses (§ 165)

The Threshold Question: Was It a Declared Disaster?

The casualty deduction changed fundamentally in 2018, and getting this wrong is the single most expensive mistake a taxpayer can make here. The answer turns entirely on your tax year, so find your year first.

Under § 165(h)(5), a personal casualty or theft loss is deductible only if it meets a disaster test:

For tax years 2018 through 2025: the loss is deductible only if it is attributable to a federally declared disaster. A plain house fire, a car accident, a burst pipe, or a burglary—with no federal disaster declaration behind it—is not deductible at all.
For tax years beginning in 2026 and later: the One Big Beautiful Bill Act (Pub. L. 119-21, § 70109) made the disaster-only limit permanent and modestly expanded it. Starting in 2026, a loss is deductible if it is attributable to a federally or a State declared disaster—a new category (§ 165(h)(5)(C)) covering a Governor-declared natural catastrophe, or any fire, flood, or explosion the Governor and the Secretary determine warrants this treatment.

Here is the point that surprises almost everyone, and you should sit with it: the pre-2018 rule—where any sudden, unexpected event was a deductible casualty—did not come back, and it is not coming back. A routine, non-disaster house fire, car accident, or theft is not deductible in 2025 or in 2026. The only thing 2026 adds is the state-declared branch; it does not restore the old "any casualty" deduction. (One narrow survival in every year: a personal casualty loss can still offset a personal casualty gain—see the insurance section—even without a disaster declaration.)

A sourcing caution, because it matters: Publication 547 (2025 edition) predates the 2026 expansion and still describes only "federally declared" disasters. That is correct for 2025 returns. For the 2026 state-declared branch, the authority is the statute itself (§ 165(h)(5)(C) and the OBBBA amendment), not the publication—the pub simply has not caught up yet.

If your casualty was not a declared disaster and you have no offsetting casualty gain, the analysis usually ends here: the loss is not deductible, and the path forward is the off-ramp, not a merits fight. If it was a declared disaster, read on—the rest of the rules decide how much, if any, survives.

The Two Floors—And How a Real Loss Becomes Zero

Even a fully qualifying disaster loss runs a gauntlet of two floors before any of it is deductible.

The $100 per-casualty floor (§ 165(h)(1)). Each separate casualty or theft event is reduced by $100, applied once per event no matter how many items were damaged.
The 10%-of-AGI floor (§ 165(h)(2)). After the $100 reduction, your total personal casualty losses for the year are deductible only to the extent they exceed 10% of your adjusted gross income.

The order is: loss, minus reimbursement, minus $100 per event, minus 10% of AGI. Publication 547's own worked example shows how brutal this can be: a $2,000 loss minus $100 is $1,900; 10% of a $29,500 AGI is $2,950; because $1,900 is less than $2,950, the deduction is zero. This is the casualty twin of the medical 7.5%-floor trap—a real, documented loss can produce no deduction whatsoever. Run your own numbers through this order before you do anything else.

Now a worked example where the loss survives. Say a federally-declared-disaster damaged your home and your documented loss is $12,000, with $50,000 of AGI. Subtract the $100 per-event floor → $11,900. Subtract 10% of AGI ($5,000) → $6,900 deductible (and then the itemizing test from the opening section still applies). The same loss at a higher AGI, or a smaller loss, can easily zero out.

Measuring the Loss: The Lesser of FMV Decline or Basis

When a disaster loss does clear the floors, the next fight is the amount, and the rule is precise (Treasury Regulation § 1.165-7(b)(1)). Your loss is the lesser of:

the decline in fair market value (the property's value immediately before the casualty minus its value immediately after), or
the property's adjusted basis (generally what you paid plus improvements),

reduced by any insurance or other reimbursement you received or reasonably expect to receive. Both halves of that "lesser of" are things you must prove, and each is a place casualty deductions die.

Proving the FMV decline. The gold standard is a competent appraisal that measures the casualty damage specifically and screens out any general market decline (Reg. § 1.165-7(a)(2)(i)). As an alternative, the cost of actual repairs can prove the decline—but only if the repairs (a) were necessary to restore the property to its pre-casualty condition, (b) were not excessive, (c) cured no more than the damage, and (d) did not raise the property's value above what it was before (Reg. § 1.165-7(a)(2)(ii)). Estimates of future repairs do not count—only repairs actually done. What also does not count: replacement cost, sentimental value, the cost of the appraisal itself, or a value decline that comes merely from being near a disaster area.

You may not need a costly appraisal. Because a professional appraisal can cost more than a modest loss is worth, the IRS offers safe-harbor methods that value many personal-use casualty losses without one (Revenue Procedure 2018-08): a cost-of-repairs estimate, a "de minimis" method for smaller losses based on a good-faith estimate, a method that relies on your insurer's report, and—for personal belongings—a replacement-cost method. Each carries its own dollar limit and conditions, spelled out in the revenue procedure and the Form 4684 instructions. For a federally declared disaster, the IRS also publishes cost-index tables you can use to value damage to a home and its contents. These methods are how a taxpayer of modest means proves a loss without hiring an appraiser.

Proving basis. You need records of what you paid and what you put into the property—purchase documents and improvement receipts. The IRS provides Publication 584, a room-by-room workbook for reconstructing the cost and contents of a damaged home, which is the standard tool when records were themselves lost in the disaster. If the disaster destroyed your receipts, you can rebuild basis from bank and credit-card history, county property and tax records, prior insurance policies, and statements from the contractors and stores you originally used.

Two cautionary tales show exactly how this measurement fails—and a crucial honesty note: in both, the taxpayers had lawyers and still lost. These are not pro se cases; that is precisely why they are worth studying. If experienced counsel could not save these deductions without the records, the lesson about records is unmistakable.

In Richey v. Commissioner, T.C. Memo. 2023-43, represented taxpayers claimed roughly $740,000 in casualty losses on a vacation home and a boat after a winter storm—and lost on every prong, each one independently fatal. They had no proof the storm caused physical damage (their only photos were taken after reconstruction); their "appraisal" was a stack of MLS printouts for other homes, which the court called not an appraisal at all but a "post hoc rationalization"; their repair receipts were tangled up with improvements like a new pool; their claimed basis was contradicted by the purchase contract; and—independently—they had not filed an insurance claim, which alone wiped out the deduction for the insured property. The court said the IRS's attacks had "picked completely clean the flesh of their claimed deduction."

In Bolles v. Commissioner, T.C. Memo. 2019-42, the disaster was unquestionable—an EF5 tornado that the President declared a major federal disaster. Eligibility was not the problem; basis proof was. For the real property, the represented taxpayers offered only the original mortgage balance as their basis, with no evidence of a decade of renovations, so the court held that without a proven basis the loss could not be computed and denied the real-property deduction. (They fared better on personal property, where the court accepted the insurer's total-loss determination and a reasonable depreciation measure.)

The two cases together are the best modern checklist of how a casualty loss dies: no proof of physical damage, no competent appraisal, repairs mixed with improvements, no basis records, and no insurance claim. Every one is avoidable with the right package—which is the verification section below.

The Insurance Rule: File the Claim or Lose the Deduction

This is the single most overlooked requirement, and it is a trap with no recovery. Under § 165(h)(4)(E), for insured personal-use property, a loss covered by insurance can be deducted only if you file a timely insurance claim. If you choose not to file—even for a good practical reason, like fear that a claim will raise your premiums—you forfeit the deduction for the insured portion entirely. That is exactly what sank part of Richey: the taxpayer declined to file because a prior claim had gone badly, and the court held that decision eliminated the deduction for the insured property.

Two related points:

Reimbursement reduces the loss, and if in the year of the casualty you have a claim with a "reasonable prospect of recovery," the loss is not sustained—and so not deductible—until the claim's outcome is reasonably certain. Deducting in the wrong year is its own common error.
Reimbursement that exceeds your basis creates a casualty gain rather than a loss—common with replacement-value policies. You may be able to defer that gain by reinvesting in similar property under IRC § 1033 (involuntary conversion). Most pro se casualty disputes are loss denials, not gain fights, so this is a flag to be aware of rather than a deep dive—but if a payout did leave you with a reportable gain, Unreported Income Disputes in Tax Court covers how that income side is handled.

Disaster Perks Worth Knowing

Two features of the disaster rules can work in your favor, and both are easy to miss.

The § 165(i) prior-year election—for a faster refund. For a loss attributable to a federally declared disaster, § 165(i) lets you elect to deduct the loss on the prior year's return instead of the year of the disaster. The appeal is cash flow: amending the earlier year can generate a refund quickly, when you most need money to rebuild. The election must be made by six months after the regular (unextended) due date of the disaster-year return—so, for a calendar-year taxpayer, a 2025 disaster loss can be claimed on the 2024 return by amending it on or before October 15, 2026. You make the election on Form 4684, Section D, filing a Form 1040-X if the prior year is already filed.

"Qualified disaster losses"—better terms, but a narrow list. A subset of disasters earns three breaks: the per-casualty floor rises to $500 instead of $100, the 10%-of-AGI floor does not apply at all, and the loss can be deducted without itemizing (added on top of the standard deduction). But "qualified disaster loss" is not a synonym for "any federally declared disaster." It applies only to a specific, dated statutory list—which, per the Federal Disaster Tax Relief Act of 2023 (enacted December 2024) and as extended by OBBBA, currently reaches certain major disasters declared between January 1, 2020 and September 2, 2025 (COVID-19-only declarations excluded), along with earlier listed disasters. Do not assume your disaster qualifies for the non-itemizer break. Check your specific FEMA declaration number against IRS.gov/DisasterTaxRelief and the current Form 4684 instructions before relying on it. Your FEMA declaration number looks like "DR-4500" (a major disaster) or "EM-3400" (an emergency); it appears on your FEMA disaster-assistance paperwork and on FEMA's online disaster-declarations list, and it is the number that ties your loss to a qualifying disaster on Form 4684.

The form itself. Every casualty loss is computed on Form 4684 (Casualties and Thefts). Section A covers personal-use property and flows to Schedule A; you enter the FEMA disaster declaration number above line 1. A note on theft: under § 165(e), a theft loss is treated as sustained in the year you discover it, and a reasonable prospect of recovery defers it—but remember that a personal theft loss, like any casualty, is now deductible only if tied to a declared disaster (rare for theft) or used against casualty gains. (Theft losses from a transaction entered into for profit—investment fraud and the like—follow different rules and are their own topic.)

Shared Ground: Exposure, Verification, and the Path

How Bad Is It, Really? The Exposure Picture With Interest

The face value of a disallowed deduction is not the stakes—the stakes are the tax, the penalty, and the interest it generates. Suppose the IRS disallows a $5,000 medical or casualty deduction and you are in a 22% bracket:

Item	Amount
Added tax (22% × $5,000)	$1,100
Possible § 6662 accuracy penalty (20% of the added tax)	up to $220
Interest from the original due date until paid	growing every month
Realistic exposure	$1,300+ and rising

The § 6662 accuracy-related penalty is 20% of the extra tax, not of the deduction, and it has a reasonable-cause defense—the full toolkit lives in How To Fight the IRS Accuracy-Related Penalty, which this article does not repeat. Interest runs from the original due date of the return and compounds daily, so an older year has been growing the whole time.

Put that exposure next to the cost of substantiating the deduction properly—an afternoon assembling bills, or an appraisal for a real disaster loss—and the math usually favors doing the documentary work, if the deduction is genuinely valid and clears the floors and the itemizing test. If it does not clear them, the same exposure picture tells you to stop fighting and turn to the off-ramp.

How To Verify the IRS's Numbers and Substantiate the Deduction

This is the documentary work that actually decides these cases. Every step is something you can do yourself.

Recompute the floor against your actual AGI. For medical, recompute 7.5% of AGI; for casualty, recompute the $100-per-event reduction and 10% of AGI. If a CP2000 income adjustment changed your AGI, both floors move—confirm the IRS used the right number.
Strip out every reimbursed dollar. Medical: subtract insurer-paid amounts and anything paid from an HSA, FSA, or MSA so you are not double-counting. Casualty: subtract insurance and any employer or charitable reimbursement, and confirm you filed the insurance claim on insured property.
Assemble the proof package.
- Medical: itemized bills from each provider, proof of payment (cancelled checks, card statements, receipts), a physician's letter for anything borderline (supplements, special foods, lodging, a capital improvement), and a before-and-after appraisal for any home improvement.
- Casualty: basis records (purchase documents, improvement receipts, the Publication 584 workbook), a competent appraisal or actual-repair receipts, proof you filed the insurance claim, and the FEMA disaster declaration number for Form 4684.
Pull your IRS account transcript to confirm exactly what was assessed before you argue any number—see How To Get and Read Your IRS Transcripts.
Recompute Form 4684 (casualty) and Schedule A, and respond with the corrected figures and a proof package that addresses the disallowance line by line. Package it per How To Prepare Your Evidence for Tax Court.

A note on estimates: where you prove an expense was actually paid but cannot pin the exact amount, a court may estimate it under the rule of Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930)—but only with some basis in the record, and that latitude exists on the medical side, not as a rescue for a casualty loss where basis or FMV is simply unproven (the courts need a number they can stand on, as Bolles and Richey show). The general mechanics of estimation and reconstruction are owned by the business-expense and charitable-deduction articles.

The Path: From Audit to Tax Court

Medical and casualty deductions are classic Schedule A audit targets—a large itemized deduction relative to income draws scrutiny. They rarely arrive through a pure CP2000, because that notice matches income items rather than deductions; more often a big Schedule A deduction is pulled for a correspondence or office audit, or a full exam of the whole Schedule A. The response is documentary at every stage: bills, appraisals, Form 4684, and insurance-claim proof.

The usual sequence:

Correspondence or office exam. The IRS asks for substantiation; see How To Respond to an IRS Audit. This is where a clean package wins or loses the case.
Exam report and 30-day letter, with the option to take it to IRS Appeals before any Notice of Deficiency.
Notice of Deficiency—the 90-day letter. If it is not resolved, the IRS issues a Statutory Notice of Deficiency. Under § 6213 you have 90 days from the date on the notice (150 days if it is addressed outside the United States) to petition the Tax Court, and this deadline cannot be extended. See You Just Got a 90-Day Letter From the IRS and How To File Your Tax Court Petition.
Tax Court—usually a small "S" case. Most medical and casualty deficiencies fall under the $50,000 small-case threshold, so they qualify for simplified small-case procedure (as Jermihov did). The filing fee is $60, with a waiver available. Most (76%) of cases close by settlement and more than 99% resolve without a trial; a case typically takes 6-18 months. These documentary disputes are prime settlement candidates once you actually produce the records. See Small Case or Regular Case: Which Should You Choose.
Audit reconsideration—the fallback. If the 90 days lapse and the tax is assessed, audit reconsideration lets you ask Examination to reopen on the documents. It works especially well for these issues—if you finally locate the bills, the appraisal, or the insurance-claim proof you lacked at exam.

If the Disallowance Is Right but You Can't Pay

Sometimes, when you work through the floors, the reimbursement rules, or the disaster test, you conclude the IRS has a point—the deduction never cleared 7.5% of AGI, the casualty was not a declared disaster, or the records simply are not there. Conceding is not a catastrophe, and ignoring the notice is the one move that truly makes it worse. The balance is collectible tax like any other, and you have options:

A monthly installment agreement to pay over time.
Currently not collectible status if paying anything would leave you unable to cover basic living expenses.
An offer in compromise if you qualify (acceptance rates run roughly 21%).
Penalty abatement if you accept the tax but the accuracy penalty seems unfair—a separate ask worth making.

The overview of all of these is in How To Resolve Your IRS Tax Debt, and as backdrop the IRS has 10 years to collect from the date of assessment.

Get Help: Low-Income Taxpayer Clinics

These disputes are close to a textbook fit for free help. A medical or casualty deficiency for a single year is usually far under the $50,000 LITC dispute cap, and many taxpayers with these issues fall within the 250% of the poverty line income limit. Around 89% of petitioners represent themselves, and a documentary deduction case suits self-representation—but the win rate is higher for represented petitioners (about 12% pro se versus about 23% represented in the most recent NTA data), so free representation is worth pursuing. Contact a Low-Income Taxpayer Clinic the day you get the letter. For a large disaster loss with appraisal and basis complexity, multiple years, or a possible casualty gain, see When To Get Professional Help With Your Tax Dispute.

What To Do Now

If you have a Notice of Deficiency disallowing a medical or casualty deduction and the 90 days clock is running:

Calendar the deadline on the face of the notice. It cannot be extended.
Confirm you benefit from itemizing—that your Schedule A total beats the standard deduction—before you spend a weekend on proof.
Recompute the floor against your actual AGI: 7.5% (medical), or $100 per event plus 10% (casualty).
For a casualty, settle the threshold question first: was it a federally declared disaster (2025) or a federally-or-State declared disaster (2026)? If not, the loss is generally not deductible.
Strip out reimbursed dollars—insurer, HSA, FSA, MSA (medical); insurance and other recoveries (casualty)—and confirm you filed the insurance claim.
Assemble the proof package: itemized bills, payment proof, and physician letters (medical); basis records, appraisal or actual-repair receipts, insurance-claim proof, and the FEMA number on Form 4684 (casualty).
Pull your IRS account transcript to verify what was actually assessed.
Decide whether to petition. A timely petition preserves your prepayment forum; filing is $60, with a waiver available, and most of these are small cases.
If you missed the 90 days, consider audit reconsideration once you can produce real proof.
Consider an LITC—you may well qualify.

Resources

Statute and regulations:

IRS forms and publications:

Cases cited:

Welch v. Helvering, 290 U.S. 111 (1933)
New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934)
INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992)
Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) (CourtListener)
Jermihov v. Commissioner, T.C. Summ. Op. 2014-75 (U.S. Tax Court, DAWSON)—non-precedential summary opinion, cited as illustration only
Richey v. Commissioner, T.C. Memo. 2023-43 (U.S. Tax Court, DAWSON)—taxpayers represented by counsel
Bolles v. Commissioner, T.C. Memo. 2019-42 (U.S. Tax Court, DAWSON)—taxpayers represented by counsel

Companion articles on TaxCourtHelp:

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax professional or attorney.