Priv. Ltr. Rul. 202114001 (Jan. 12, 2021)
Available at https://www.irs.gov/pub/irs-wd/202114001.pdf
The IRS has issued a private letter ruling to a male same-sex married couple regarding the status of various medical costs and fees arising from in vitro fertilization (IVF) procedures, gestational surrogacy, and related items as medical care under Code § 213. The couple planned to have a child, with sperm to be donated by one spouse, an egg to be donated by the other spouse’s sister, and an unrelated individual to serve as a gestational surrogate. The couple sought a determination that the related costs and fees would qualify as medical care expenses under the Code.
The IRS concluded that the couple’s costs and fees relating to egg donation, IVF procedures, and gestational surrogacy would not qualify as medical care expenses. The IRS explained that only expenses directly attributable to the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body of a taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent qualify as medical care expenses of the taxpayer under Code § 213(d). In this case, the couple’s proposed expenses involving egg donation, IVF procedures, or gestational surrogacy incurred for third parties would not be incurred for treatment of disease or for the purpose of affecting any structure or function of the couple’s bodies. The IRS noted that its conclusion was consistent with various court cases, including Magdalin v. Comm’r (see our Checkpoint article) and Morrissey v. United States (see our Checkpoint article). However, the IRS also ruled that medical costs and fees directly attributable to the couple, including sperm donation and sperm freezing, would qualify as medical care expenses.
EBIA Comment: Expenses like those at issue in this private letter ruling can present challenges for administrators of health FSAs and HRAs, who must determine whether a particular individual’s IVF and similar expenses are reimbursable. Even when the services are qualified medical expenses, IVF and similar programs may raise issues under the “expense-incurred” requirement—for example, if the program requires payment before services are actually provided or spans multiple plan years. 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.