08 Apr 2022 IRS Says Assisted Reproduction for LGBTQ Couples Not Deductible
With income tax time upon us, same-sex couples who hoped to deduct expenses for assisted reproductive technologies such as egg or sperm donation, in vitro fertilization or surrogacy are meeting with disappointment—even as heterosexual peers are able to successfully claim those same deductions. In January 2021, the IRS issued a Private Letter Ruling, or PLR, that upholds the agency’s historic denial of deductions for certain reproductive health procedures for same-sex couples and LGBTQ individuals.
As reported in The Tax Adviser, the IRS issued Letter Ruling 202114001 in response to a request from a legally married gay couple, who planned to have a child using sperm from one partner and eggs from the second partner’s sister, with an unrelated gestational surrogate. The couple sought to deduct expenses for egg retrieval, sperm harvesting and freezing, IVF, medical insurance related to the pregnancy, childbirth expenses for the surrogate and surrogacy legal and agency fees.
Under Section 213 of the U.S. tax code, taxpayers may itemize deductions for unreimbursed medical expenses, based on taxpayers’ adjusted gross income (AGI), as long as the total deductions exceed 7.5 percent of AGI. The code defines legitimate medical deductions as expenditures for diagnosis or treatment of disease or for procedures “for the purpose of affecting any structure or function of the body.” The latter might include reproductive procedures such as vasectomies or tubal ligations.
Tax Deductions Limited to Medical Infertility of Taxpayer
In its letter, the IRS adheres to the historically narrow definitions of what constitutes a valid medical deduction. “[G]enerally, for an expense to be deductible, there must be a causal relationship between a medical condition and the expenditures incurred in treating the condition,” the letter reads. “The [ruling request does] not identify a medical condition nor do taxpayers allege that expenses are incurred to treat a medical condition. Rather the request relies on the second portion of I.R.C. § 213(d)(1)(A) in claiming IVF, surrogacy, and related costs are for the purpose of affecting any structure or function of the body….”
The IRS concludes that the second criteria that procedures “affecting any structure or function of the body” would be deductible refers solely to the taxpayer’s body, and not to the bodies of third parties, such as egg donors or surrogates.
The letter concludes that the male couple’s expenses relating to third parties, including egg donation, IVF, surrogacy, health insurance for the surrogate, and any legal and agencies fees are not deductible. Medical expenses for procedures directly related to the taxpayers, such as sperm donation and sperm freezing, are deductible.
The IRS letter references three supporting cases in justifying its denial, as reported by The Tax Adviser. In the 2009 case Magdalin v. Commissioner, a single, heterosexual male taxpayer tried to deduct IVF costs, surrogacy expenses and legal fees. The Tax Court denied the deductions because the expenses were not for diagnosis or treatment of a medical condition nor for "affecting a structure" of the taxpayer’s body.
In the second case, Longino v. Commissioner, the male taxpayer deducted expenses for IVF procedures for his former fiancée. The Tax Court ruled the taxpayer could not deduct the IVF costs of an unrelated person unless the taxpayer himself were infertile.
In its third supporting case, the IRS cites Morrissey v. United States, in which the taxpayer, a gay man in a same-sex relationship, tried to deduct expenses related to egg donation, IVF and surrogacy. The taxpayer did not claim to be medically infertile; rather, he claimed to be “effectively” infertile as a gay male. The Eleventh Circuit Court denied the deductions because the purpose of the claimed procedures was not to affect the “structure or function” of the taxpayer’s own body.
Outdated Tax Rules Based on Outdated Definitions of Parentage
In a nutshell, the IRS won’t let you deduct medical costs for procedures performed on a third party, unless it is to remedy your, the taxpayer’s, own medical condition, such as medical infertility.
I first wrote about the issue of sexual orientation and gender-related inequities in the U.S. tax code in 2015, when a Florida law professor sued the IRS after being denied $36,000 in deductions for expenses related to the conception and birth of twin sons in 2014. After four years and more than $100,000 spent on egg donation, IVF and surrogacy, the professor appealed the denial, becoming the first to argue that the inability of two men to conceive constitutes medical infertility. In rejecting his appeal, the reviewing IRS agent referred to the professor’s sexual orientation as a “choice.”
As is the case with insurance coverage for assisted reproduction, rules, regulations and case law are lagging the reality: Even though same-sex marriage has been legal in the United States since 2015, many of the hundreds of U.S. and state laws and regulations related to marriage continue to treat married heterosexual couples differently from married same-sex couples.
Regretfully, even as some states, such as Maryland, have enacted reforms to address inequities for same-sex couples, it appears the IRS still clings to antiquated definitions of reproduction, parentage and family. As a result, same-sex couples seeking assisted reproductive services all too often face legal, financial and medical obstacles not encountered by their heterosexual peers. By inflexibly enforcing a system in which same-sex couples are denied deductions commonly allowed for heterosexual couples, the IRS is prolonging, if not lending implied support to, the unfairness.
Disclosure: My firm, International Fertility Law Group, focuses exclusively on fertility law. For information or advice regarding your specific income tax situation, please consult your tax attorney or accountant.