June 14, 2024


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IRS Advice on Medical Expenditures Query Equitable Tax Remedy

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On April 9, 2021, the Internal Income Company (IRS) released PLR 202114001 (PLR), which presents direction on the deductibility of professional medical charges beneath Section 213 of the Interior Revenue Code (Code) relating to fertility costs for exact same-sexual intercourse partners. Even though the PLR disallows most of the expenditures incurred by a same-sex couple wishing to have a boy or girl, the IRS’ distinction among deductible costs for healthcare processes attributable to the taxpayer and non-deductible fees for medical treatments attributable to 3rd functions raises unique issues about the equitable procedure of different taxpayers.


The PLR responded to a request for a ruling on the deductibility of health care costs arising from egg donation, in vitro fertilization (IVF) procedures and gestational surrogacy for a male identical-sexual intercourse pair (Taxpayers A and B, collectively the Taxpayers). The Taxpayers had been legally married and wished to have a little one with as significantly of their agent DNA as attainable. As such, the Taxpayers prepared for Taxpayer A to donate sperm and for Taxpayer B’s sister to donate the egg, with an unrelated third social gathering made use of as a gestational surrogate to carry the ensuing kid to time period. The Taxpayers sought a ruling below Segment 213, authorizing deductions for expenses and costs relating to egg retrieval, sperm donation, sperm freezing, IVF healthcare procedures, surrogate childbirth charges, surrogate health care insurance coverage, legal and agency costs relating to the surrogacy and other professional medical expenditures arising from the surrogacy.

The IRS concluded that the prices and service fees linked to egg donation, IVF treatments and gestational surrogacy would not qualify as deductible clinical costs beneath Segment 213 when they are incurred for 3rd events, these types of as Taxpayer B’s sister and the proposed surrogate. In contrast, healthcare fees and service fees immediately attributable to the taxpayers are deductible in just the constraints of Portion 213, including sperm donation and sperm freezing.

Legal Background

The IRS considered various essential authorities prior to arriving at its conclusion. Setting up the statutory structure for the deductions, Part 213(a) of the Code allows a deduction of costs paid for healthcare care of the taxpayer to the extent they exceed 7.5% of the their modified gross earnings. Critically, “medical treatment of the taxpayer” is go through to involve only those people costs and charges instantly attributable to the taxpayer, the taxpayer’s partner or the taxpayer’s dependents, hence excluding third-social gathering egg donors or gestational surrogates.

Segment 213(d)(1)(A) of the Code offers that healthcare care involves amounts paid out for the analysis, get rid of, mitigation, cure or avoidance of sickness or for the objective of affecting any composition or functionality of the human body. Clinical treatment is consequently divided into two distinct qualifying definitions: Those quantities compensated to deal with a health care problem or defect and all those quantities paid out for the reason of impacting any framework or function of the physique.

The PLR delivers various authorities that look at the contours of the medical cost deduction underneath the very first qualifying definition of care relating to a health care problem. For occasion, Atkinson v. Commissioner, 44 T.C. 39 (1965) and Magdalin v. Commissioner, T.C. Memo 2008-293, aff’d with out published opinion, 105 A.F.T.R.2d (RIA) 2010-442 (1st Cir. 2009) both assistance the typical proposition that the deduction has historically been construed narrowly.

Under the 2nd qualifying definition of healthcare treatment relating to the framework and functionality of the system, Earnings Ruling 73-201 (1973-1 CB 140) and Revenue Ruling 73-603 (1973 CB 76) are referenced to deliver further advice in the unique context of clinical remedies impacting fertility. These rulings hold that the expenses affiliated with vasectomies and functions that render a woman incapable of obtaining small children have an impact on a structure or purpose of the body and thus qualify as a deductible medical expense in just the restrictions of Portion 213.

The IRS eventually supplies a amount of illustrative circumstances. In Magdalin, the US Tax Court docket viewed as surrogacy and egg donor bills claimed by a solitary, heterosexual male and held that expenses incurred in fathering kids by unrelated egg donors and gestational carriers are not deductible healthcare fees less than Portion 213. The deductions ended up denied mainly because there was not a causal partnership among an underlying healthcare issue or defect and the taxpayer’s bills nor have been the fees incurred for the objective of influencing a composition or perform of the taxpayer’s system. Longino v. Commissioner, T.C. Memo 2013-90, aff’d 593 Fed. Appx. 965 (11th Cir. 2014) ruled in the same way, with the Tax Court holding that a taxpayer can not deduct IVF prices of an unrelated man or woman if the taxpayer does not have a defect which stops them from the natural way conceiving children. In Morrissey v. United States, 871 F.3d 1260 (11th Cir. 2017), a male taxpayer in a same-sex union sought to deduct prices he incurred to retain, compensate and treatment for the girl serving as the egg donor and gestational surrogate. Morrissey characterized himself as “effectively,” if not medically, infertile due to the fact he is homosexual, prompting the courtroom to consider no matter whether the fees ended up incurred for the intent of affecting Morrissey’s bodily reproductive operate. The courtroom uncovered that the IVF expenses had been not deductible underneath Area 213(d) mainly because the costs were being not for materially influencing or altering an motion for which the taxpayer’s individual overall body was particularly fitted, used or responsible. Given that the IVF and surrogacy processes did not materially have an effect on the framework and operate of the taxpayer’s body, they did not qualify below the next definition of “medical fees.”

Coverage OUTLOOK

Delivering assistance on the deductibility of health-related prices could not have been an straightforward job for the IRS. The latest legal routine underneath Part 213 presents a constant and structured analytical framework for inspecting the deductibility of fees associated with fertility-associated health care processes. Having said that, it also introduces particular equity worries involving taxpayers.

The PLR is to some degree uncommon in that the Taxpayers ended up suggested that the IRS would most likely challenge an adverse ruling and choose to proceed with their ask for. This selection explicitly highlights the advanced character of this part of the Code, increasing the risk that it may well require to be revisited to guarantee taxpayers obtain reasonable cure. The place this simply cannot be accomplished by way of IRS or US Office of the Treasury steering, it may suggest the have to have for a legislative alternative.

Mechanically, it could possibly be argued that restricting the applicability of the deduction stops income shifting in between a variety of taxpayers. Less than the PLR, until the taxpayer is medically infertile, only 3rd-get together egg donors and surrogates can deduct clinical costs relating to IVF strategies since of the have an affect on these kinds of a course of action would have on the framework and operate of their human body. If this kind of a deduction were being authorized to taxpayers with out healthcare infertility, it could be favorable to change the deduction concerning the few and the surrogate based on their money situations. Therefore, the limitation on the deduction may perhaps assure equitable tax cure involving the many get-togethers by stopping profits shifting.

Conversely, mainly because of the framework of Part 213 and the definition of “medical costs” as interpreted by the PLR, partners looking for the exact same health-related treatments for the identical intent of conceiving a little one may well facial area different tax cure relying on their health-related conditions or household structure.

For instance, a distinct-sex pair going through health-related infertility would probably discover their health-related costs relating to IVF strategies deductible beneath the PLR framework. A different-sexual intercourse pair that does not working experience medical infertility but is faced with other legitimate medical motives for pursuing IVF processes, these types of as dormant genetic ailments at chance of passing on to the kid, would likely obtain the very same professional medical expenditures non-deductible. So, though both of those partners are offered with the alternative in between conceiving the natural way or by means of IVF treatments, the PLR framework would likely only allow the deduction to the 1st couple despite the second couple’s reputable factors for pursuing IVF techniques.

Even stranger final results may perhaps occur in the context of very same-sex couples. The existing authorized regime appears to imply that a similar-intercourse few faced with healthcare infertility would probable come across their medical charges relating to IVF processes deductible. In comparison, a exact-sexual intercourse couple that does not knowledge medical infertility would probable discover the very same fees non-deductible. From a realistic place of watch, neither pair would be able of straight conceiving a baby together. Nevertheless, merely simply because of the variations in their medical instances, one couple would be able to entry a deduction whilst the other would not.

In gentle of social and authorized developments encompassing same-sexual intercourse couples—and confronted by the useful realities of modern-day families—a reassessment of this analytical framework might be necessary for equitable remedy amongst taxpayers.

Anthony Teng, a summer months affiliate in the New York place of work, also contributed to this report.