The process of having a child for a same-sex male couple can be extremely costly, which has led such couples to question whether these medical costs can be deducted on their tax return. In Letter Ruling 202114001, issued on Jan. 12, 2021, the IRS ruled against the deductibility of medical expenses arising from a male couple's use of gestational surrogacy, in vitro fertilization (IVF) procedures, and related items.
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The letter ruling was requested by a legally married same-sex male couple wishing to have a child who would have as much representative DNA from the couple as possible. The egg donor was the sister of one of the partners, and an unrelated individual was the gestational surrogate. The taxpayers were seeking a ruling, under Sec. 213, that would allow them to deduct costs and fees such as:
- Medical expenses directly attributed to both spouses.
- Egg retrieval and medical expenses of sperm donation.
- Sperm freezing.
- IVF medical costs.
- Childbirth expenses for the surrogate.
- Surrogate medical insurance related to the pregnancy.
- Legal and agency fees for the surrogacy; and
- Any other medical expenses arising from the surrogacy.
As far as what types of expenses are deductible is concerned, Section 213(d)(1) states that medical expenses consist of 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 example, vasectomies and operations that render a woman incapable of having children affect a structure or function of the body and thus would constitute deductible medical expenses. The medical expense deduction has historically been construed narrowly, the letter ruling notes. Deductions have been confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness (see Regs. Sec. 1.213-1(e)(1)(ii)).
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In the case of the male couple here, the letter ruling explains:
[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 [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 IRC § 213(d)(1)(A) in claiming IVF, surrogacy, and related costs are for the purpose of affecting any structure or function of the body [IRS Letter Ruling 202114001].
In support of denying most of the claimed expenses, the letter ruling references three court cases that ruled against taxpayers who claimed similar medical expense deductions. In the first, Magdalin, T.C. Memo. 2008-293, the, taxpayer, a single heterosexual male, "obtained donated eggs to be fertilized with his sperm and transferred to a gestational carrier using the IVF process." On his tax return, he deducted legal fees related to "the donor and surrogacy agreements, fees and expenses of the donor and surrogate, fees to the IVF clinic, and prescription costs." The Tax Court disallowed these deductions because "there was no causal relationship between an underlying medical condition or defect and the taxpayer's expenses, nor were the costs incurred for the purpose of affecting a structure or function of taxpayer's body," as required under Section 213.
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In the second court case discussed in the letter ruling, Longino, T.C. Memo. 2013-80, aff'd, 593 Fed. Appx. 965 (11th Cir. 2014), the taxpayer deducted costs related to IVF procedures undergone by his former fiancée as medical expenses on his tax return. The court held, the letter ruling notes, that "a taxpayer cannot deduct IVF costs of an unrelated person if the taxpayer does not have a defect which prevents him from naturally conceiving children."
Lastly, in Morrissey, 871 F.3d 1260 (11th Cir. 2017), a male in a same-sex union deducted costs to retain, care for, and compensate the women serving as egg donor and gestational surrogate. The Eleventh Circuit discussed the conditions for applying Section 213(d) and considered whether the expenses were necessary for the purpose of affecting the taxpayer's body's reproductive function; the taxpayer acknowledged he was not medically infertile but declared himself to be "effectively" infertile due to his sexuality.
As the letter ruling describes the Eleventh Circuit "applied the ordinary meaning of the statutory terms 'affect' and 'function' in ultimately finding the IVF costs were not deductible under IRC § 213(d) because the costs were not for purposes of materially influencing or altering an action for which taxpayer's own body was specifically fitted, used, or responsible." The IVF and surrogacy costs were not deductible because the taxpayer's own function in the reproductive process was to produce healthy sperm, and he was able to do so without the IVF and surrogacy procedures.
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After discussing these authorities, the IRS concludes in the letter ruling that the male couple's expenses consisting of egg donation, IVF procedures, and gestational surrogacy incurred for third parties were not for treatment of disease and were not for the purpose of affecting any structure or function of the taxpayers' bodies. The letter ruling states:
As such, payments related to the following products and services are not deductible under IRC. § 213: egg retrieval, IVF medical costs, childbirth costs and fees for the surrogate, surrogate medical insurance related to the pregnancy, legal and agency fees for the surrogacy, and other medical costs and fees arising from the surrogacy.
The IRS notes, however, that medical expenses directly attributable to the male couple such as sperm donation and sperm freezing could be deducted as medical expenses under Section 213.
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