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Expenses for In Vitro Fertilization Process Involving Unrelated Egg Donor and Surrogate Were Not for Medical Care



Morrissey v. United States, 2016 WL 8198717 (M.D. Fla. 2016)

A federal court has upheld an IRS determination that a taxpayer cannot claim a medical care expense deduction on his federal tax return for the costs of in vitro fertilization (IVF) involving an egg donor and a gestational surrogate who were not related to the taxpayer. The expenses at issue were for the medical care, identification, retention, compensation, and expense reimbursement of potential donors and surrogates involved in the IVF process.

The court concluded that the expenses were not deductible because they were not medical care expenses as defined under Code § 213(d). First, the expenses were not incurred for the medical care of the taxpayer, spouse, or a dependent; instead, they were incurred for treatments and procedures performed on unrelated individuals. Furthermore, the expenses did not diagnose, cure, mitigate, or treat a disease of the taxpayer, spouse, or a dependent, nor did they affect a structure or function of the body of the taxpayer, spouse, or dependent. The taxpayer had acknowledged that he had no disease but argued that as a homosexual male, he was “effectively infertile,” and the expenses paid for potential donors and surrogates affected the reproductive function of his body. The court rejected this argument, however, concluding that the IVF process “ultimately and necessarily” affected only the bodies of the unrelated potential donors and surrogates. The taxpayer further argued that, in disallowing the deduction, the IRS had discriminated against him because of his sexual orientation, but the court concluded that the IRS’s decision was based only on its interpretation of Code § 213(d). The court distinguished this case from prior IRS rulings allowing a deduction for expenses of a kidney or egg donor when the kidney or egg is implanted in the taxpayer’s body (see our Checkpoint article), and noted its consistency with prior court decisions disallowing deductions in circumstances similar to the taxpayer’s (see our Checkpoint article).

EBIA Comment: Expenses like those at issue in this case can present unique challenges for administrators of health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs), so administrators should not rely solely on Publication 502 when determining whether a particular individual’s IVF and similar expenses are reimbursable. Even when the services are qualified medical expenses, these treatment programs may require payments before services are actually provided, raising issues under the expense-incurred requirement. Furthermore, the programs may span multiple plan years, so payments may not correspond with the dates on which services are actually provided. For more information, see EBIA’s Cafeteria Plans manual at Section XX.L.13 (“Infertility Expenses”). See also EBIA’s Consumer-Driven Health Care manual at Sections XV.C (“What Is an HSA-Qualified Medical Expense?”) and XXIV.B (“HRAs May Reimburse Only Code § 213(d) Expenses”), and EBIA’s Self-Insured Health Plans manual at Section VI.B.1 (“Only Code § 213 Medical Care Receives Favorable Tax Treatment”).

Contributing Editors: EBIA Staff.

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