117 T.C. No. 3



                UNITED STATES TAX COURT



    STEPHEN T. FAN AND LANDA C. FAN, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 17036-99.                      Filed July 24, 2001.




     In 1995, P purchased an intraoral camera system
(the system) for use in his dental practice. The
system has general applicability and usefulness to all
dental patients. It reduces the time necessary for a
dentist to explain diagnoses, “procedures”, and
recommended treatment with patients. P considered the
system to be a more effective and efficient way to
communicate with hearing-impaired patients. On their
1995 Federal income tax return, Ps claimed a disabled
access credit for the cost of the system. See sec. 44,
I.R.C. R determined that the system was not an
“eligible access expenditure” for purposes of sec.
44(c), I.R.C., and disallowed the credit.

     Held: Because the system was not acquired by
petitioner in order for him to comply with the
applicable requirements of the ADA, the system is not
an “eligible access expenditure” for purposes of sec.
44(c), I.R.C.
                               - 2 -


     Jon R. Vaught, for petitioners.

     H. Clifton Bonney, Jr., for respondent.

                              OPINION

     DAWSON, Judge:   This case was assigned to Special Trial

Judge Lewis R. Carluzzo pursuant to section 7443A(b)(3) and Rules

180, 181, and 182.1   The Court agrees with and adopts the opinion

of the Special Trial Judge, which is set forth below.

                OPINION OF THE SPECIAL TRIAL JUDGE

     CARLUZZO, Special Trial Judge:     Respondent determined

deficiencies of $2,111 and $1,114 in petitioners’ Federal income

taxes for 1995 and 1996, respectively.    The issue for decision is

whether petitioners are entitled to a disabled access credit

under section 44 for either year in issue.2

                            Background

     Some of the facts have been stipulated and are so found.

Petitioners are husband and wife.   At the time that the petition

was filed, they resided in Fremont, California.    References to

petitioner are to Stephen T. Fan.

     Petitioner is and was at all relevant times, a self-employed

dentist.   During 1995, he employed fewer than 30 individuals in

     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
       The 1996 deficiency results from the disallowance of the
portion of sec. 44 credit generated in 1995 and carried over into
1996.
                               - 3 -

connection with his dental practice, which generated less than $1

million in gross receipts for that year.

     On December 28, 1995, petitioner purchased and placed in

service in his dental practice an ULTRACAM Cart System with Cart

and two PR-LWB 314AW Wall Mounts (intraoral camera system or

system) for $8,995 and $166, respectively.   The intraoral camera

system consists of the several components, including:   (1) An

imaging system that includes a small, wand-shaped video camera

and a wall-mounted monitor; and (2) educational information,

including printed materials and video presentations, for patient

usage.

     The video camera is designed to be inserted into a patient’s

mouth so that a magnified image of the inside of the patient’s

mouth can be displayed on the wall-mounted monitor.   In this

manner, the patient can see what the dentist sees during the

examination and therefore, theoretically, better understand the

nature of any problem uncovered by the examination and the

treatment recommended by the dentist.   Images displayed on the

monitor can be printed for further review by, or consultation

between, the patient and the dentist.

     After the examination is completed and treatment

recommended, a patient can review the educational information

included with the system.   The patient can select video

presentations addressing periodontal diseases, root canals,
                                   - 4 -

temporal mandibular disorders, implants, etc., as well as the

proposed treatment for these and other conditions.

       According to promotional materials, the system provides

images that “facilitate fast, accurate analysis and diagnosis” of

dental conditions.       Furthermore, according to the promotional

materials, the system “reduces the time necessary to explain

diagnoses and procedures and describe courses of treatment with

patients”.       The system has general applicability and usefulness

to all patients.       The promotional materials do not suggest that

the system was designed specifically to facilitate the treatment

of disabled individuals.

       Some of petitioner’s patients are hearing impaired.3      Prior

to purchasing the system, petitioner communicated with his

hearing-impaired patients primarily through the use of

handwritten notes.       He also provided educational video tapes that

his patients could view through the use of a VCR and television

set.       None of his hearing-impaired patients complained to

petitioner about this method of communication.       Nevertheless,

petitioner found communicating in this manner to be cumbersome

and time consuming.       According to petitioner, the use of

handwritten notes generally added about 20 minutes to an

examination.       Furthermore, after each examination, the pens,


       3
       When questioned on cross-examination, petitioner refused
to disclose the number of hearing-impaired patients that he
treated during the years in issue.
                                - 5 -

pencils, and notepads had to be disinfected or disposed of due to

health requirements.    Petitioner also found use of the VCR and

television to be inconvenient because the equipment had to be

brought into and removed from the examination room during the

examination.

     Prior to purchasing the system, petitioner did not refuse

treatment to a prospective patient because the patient had a

hearing impairment.    He did not purchase the system at the

suggestion or recommendation of one of his hearing-impaired

patients, and during the years in issue he did not limit the use

of the system to his hearing-impaired patients.    Nevertheless,

when compared to handwritten notes, he considers the system to be

a more effective and efficient way to communicate with his

hearing-impaired patients.    When used in the examination of a

hearing-impaired patient, the system, in some instances, reduced

the need for petitioner to communicate with the patient by

handwritten notes.    Petitioner further found that if he used the

system during the examination of a hearing-impaired patient, the

patient was more likely to understand and agree to any

recommended treatment.    According to promotional materials,

“studies show case acceptance increases by approximately 30

percent with an intraoral camera system.”

     Petitioners filed a timely 1995 Federal income tax return.

On a Form 8826, Disabled Access Credit, included with that
                                - 6 -

return, they reported a $4,879 current year disabled access

credit attributable to the purchase of the system.      After taking

into account applicable limitations, the current year disabled

access credit resulted in a claimed general business credit of

$2,969.   See sec. 38.   The balance of the 1995 credit ($1,910)

was treated as a carryforward general business credit on a Form

3800, General Business Credit, included with petitioners’ 1996

Federal income tax return.    Taking into account applicable

limitations, they claimed a general business credit of $1,114 for

that year, all of which is attributable to the purchase of the

system in 1995.

     In the notice of deficiency, respondent disallowed the

disabled access credit for 1995 and the associated carryforward

to 1996; instead respondent treated the entire cost of the

intraoral camera system as a deductible business expense under

section 179.   According to the explanation contained in the

notice of deficiency, the disabled access credits attributable to

the system were disallowed because the system “does not permit

patients to be treated who were excluded from services before the

purchase of the camera.”

                             Discussion

     Subject to various limitations, an eligible small business

is entitled to a disabled access credit for eligible access

expenditures for the taxable year.      Sec. 44.   The parties agree
                                 - 7 -

that petitioner qualifies as an “eligible small business” for the

years in issue, sec. 44(b); their disagreement focuses on whether

the cost of the system qualifies as an “eligible access

expenditure”, sec. 44(c).

     To qualify as an eligible access expenditure within the

meaning of section 44, the expenditure must be “paid or incurred

by an eligible small business for the purpose of enabling such

eligible small business to comply with applicable requirements

under the Americans With Disabilities Act of 1990” (ADA).    Sec.

44(c)(1).

     Congress enacted the ADA to establish a clear and

comprehensive Federal prohibition of discrimination on the basis

of disability in the areas of:    (1) Employment in the private

sector; (2) public services; (3) public accommodations; (4)

transportation; and (5) telecommunications.    H. Rept. 101-485

(II) at 28 (1990); see also 42 U.S.C. sec. 12101(b).    The ADA is

divided into five titles that coincide with the above-mentioned

areas.   42 U.S.C. sec. 12101.   Petitioner’s dental office is a

place of public accommodation within the meaning of the ADA.      42

U.S.C. sec. 12181(7)(F); United States v. Morvant, 

, 1161 (E.D. La. 1995).    Consequently, we focus our attention

on Title III of the ADA.    42 U.S.C. secs. 12181-12189.

     Title III of the ADA prohibits discrimination “on the basis

of disability in the full and equal enjoyment of the goods,
                                   - 8 -

services, facilities, privileges, advantages, or accommodations

of any place of public accommodation by any person who owns,

leases (or leases to), or operates a place of public

accommodation.”    42 U.S.C. sec. 12182(a).    Relevant for our

purposes, Title III specifically defines discrimination to

include a failure to take necessary steps to ensure that no

individual with a disability is denied services because of the

absence of auxiliary aids and services.      42 U.S.C.

sec. 12182(b)(2)(A)(iii).    The term “auxiliary aids and services”

includes:

     (A) qualified interpreters or other effective methods
     of making aurally delivered materials available to
     individuals with hearing impairments;
     (B) qualified readers, taped texts, or other effective
     methods of making visually delivered materials
     available to individuals with visual impairments;
     (C) acquisition or modification of equipment or
     devices; and
     (D) other similar services and actions.

42 U.S.C. sec. 12102(1).

     The preamble to the final regulations implementing the ADA

states that the auxiliary aid requirement is a flexible one.      28

C.F.R. sec. 36.303, Appendix B (2000).      “A public accommodation

can choose among various alternatives as long as the result is

effective communication.”    Id.     The final regulations

implementing the ADA include examples of auxiliary aids and

services required to be furnished to ensure effective

communication.    28 C.F.R. sec. 36.303(b).    With respect to
                                  - 9 -

individuals with hearing impairments, the examples given include:

     Qualified interpreters, notetakers, computer-aided
     transcription services, written materials, telephone
     handset amplifiers, assistive listening devices,
     assistive listening systems, telephones compatible with
     hearing aids, closed caption decoders, open and closed
     captioning, telecommunications devices for deaf persons
     (TDD’s), videotext displays, or other effective methods
     of making aurally delivered materials available to
     individuals with hearing impairments.

28 C.F.R. sec. 36.303(b)(1).

     The ADA requires businesses to ensure effective

communication through the use of auxiliary aids and services.

Costs associated with complying with this requirement are

“eligible access expenditures” for purposes of the disabled

access credit.   Sec. 44(c)(2).    Petitioner argues that the

purchase of the system enables his business to meet this

requirement with respect to hearing-impaired individuals and,

therefore, the cost of the system qualifies as an eligible access

expenditure.   For the following reasons, we disagree.

     At the outset, we note that petitioner was already in

compliance with the ADA at the time that he purchased the system.

Petitioner did not discriminate against, or refuse to treat,

hearing impaired individuals “on the basis of disability”.      42

U.S.C. sec. 12182(a).   Nor did he fail to take necessary steps to

ensure that no individual with a disability is denied services

because of the absence of auxiliary aids and services.     See 42

U.S.C. sec. 12182(b)(2)(A)(iii).     He effectively communicated
                              - 10 -

with his hearing-impaired patients through the use of handwritten

notes, which is an acceptable “auxiliary aid” or service under

the ADA.

     More importantly, the system is not a replacement for, or

acceptable alternative to, handwritten notes for purposes of the

section 44 credit.   The system itself was not designed or

marketed as a communication device for hearing-impaired

individuals, and petitioner did not limit the use of the system

to his hearing-impaired patients.   We accept his claim that, by

permitting a patient to view a video image of a particular dental

condition, the system might have allowed a patient to better

understand the nature of his or her dental condition and the

recommended treatment, but it does not eliminate the need for the

dentist and the patient to communicate with each other.   See 28

C.F.R. sec. 36.303, Appendix B (2000) (noting that communications

involving areas such as health, legal matters, and finances may

require the use of notes or interpreters, or an effective

alternative such as the use of a computer terminal upon which the

customer can exchange typewritten messages).   As a result, we

fail to see how the system constitutes an effective method “of

making aurally delivered materials available to individuals with

hearing impairments”.   42 U.S.C. sec. 12102(1)(A); see also sec.

44(c)(2)(B); 28 C.F.R. sec. 36.303(b)(1).
                                - 11 -

     It is our view that petitioner did not purchase the system,

in lieu of using handwritten notes, so as to be in compliance

with the ADA.   Section 44 was enacted as part of the Omnibus

Budget Reconciliation Act of 1990, Pub. L. 101-508, sec.

11611(a), 104 Stat. 1388-501, and is intended to complement the

ADA by providing “relief to small businesses making the

accommodations required by the ADA.”      136 Cong. Rec. S12852

(daily ed. Sept. 12, 1990) (statement by Senator Kohl).      The

legislative history indicates that the Congress was concerned

that the requirements contained in the ADA may impose a severe

financial burden on certain small businesses.      See H. Conf. Rept.

101-964, at 1138-1140 (1990).    To alleviate the burden, the

Congress provided small businesses with a tax credit for a

portion of the costs incurred in complying with the ADA.      See id.

If the expenditure was not made to enable compliance with the

ADA, then the expenditure does not qualify for credit under

section 44.

     In this case, petitioner’s acquisition of the system did not

enable him to comply with the ADA–-he was already in compliance

with the ADA through the use of handwritten notes to communicate

with his hearing-impaired patients.      Furthermore, the system

is not a replacement or substitute for the use of handwritten

notes.   It follows that cost of the system is not an eligible

access expenditure within the meaning of section 44(c), and,
                              - 12 -

consequently, the system does not qualify for the disabled access

credit.   Respondent’s determination in this regard is therefore

sustained.4

     To reflect the foregoing,



                                         Decision will be

                                    entered for respondent.




     4
       Respondent also argues that the purchase of the intraoral
camera system was an unreasonable and unnecessary expenditure for
the purpose of making aurally delivered materials available to
hearing-impaired patients. Sec. 44(c)(3). Because we have
determined that the system is not an “eligible access
expenditure”, we do not address this issue.