IRS Concedes Tax Deductibility of Expenses for Gender Identity Disorder Treatment

During college, I did not know a thing about tax law and I never would have imagined that I’d become a tax lawyer.  Instead, I focused my studies on liberal arts and social sciences.  Those studies helped me develop a keen interest in sociological issues.  I development an awareness of social problems, including racism, sexism, and homophobia.  Even though the pursuit of a law degree and an LL.M. in Taxation did not allow me as many opportunities to stay aware of the latest sociological developments, I maintained an interest in social issues.  Thus, throughout my legal and tax studies and first few years of legal practice, I loved examining tax decisions that addressed social issues.  Last week, an IRS acquiescence gave me the opportunity to do so.  The IRS acquiesced to O’Donnabhain, in which the U.S. Tax Court held that sex reassignment surgery and hormone therapy for gender identity disorder are deductible medical expenses pursuant to § 213 of the Internal Revenue Code.

At issue in this case was whether hormone therapy and sex reassignment surgery constitute medical care.  § 213 allows a deduction for expenses for medical care if the taxpayer is not compensated for them by insurance or otherwise.  Under § 213(d)(1)(A), medical care includes treatment for a disease.  § 213(d)(9)(B) excludes from the definition of “medical care” any procedure that is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

The IRS initially held that expenses toward sex reassignment surgery and hormone therapy  were not deductible.   The Tax Court disagreed.  It opined that gender identity disorder is a disease and that sex reassignment surgery and hormone therapy treat the disease.  Thus, it held that expenses for sex reassignment surgery and hormone therapy are deductible.  The IRS now abandons its original position.

Another issue that O’Donnabhain addresses is the deductibility, or lack thereof, of cosmetic surgery.  It specifically addresses under which circumstances breast augmentation surgery is tax deductible.

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