Direct sperm costs are deductible, but surrogacy costs are not

Plain-English summary

A married male couple planned to use one spouse's sperm, the other spouse's sister's egg, and an unrelated gestational surrogate. The IRS ruled that costs directly attributable to medical care of the taxpayers—such as sperm donation and freezing—may qualify for the Section 213 medical-expense deduction, subject to its adjusted-gross-income threshold. Costs involving the third-party egg donor and surrogate do not qualify. Those nondeductible costs include egg retrieval, IVF, childbirth, pregnancy insurance, legal and agency fees, and other surrogacy expenses because they neither treated a taxpayer's disease nor affected a structure or function of a taxpayer's body.

Ruling snapshot

• Question: Which IVF and gestational-surrogacy costs qualify as deductible medical expenses under Section 213?
• Outcome: Mixed. Direct sperm-related medical costs qualify, while third-party egg-donation, IVF, and surrogacy costs do not.
• Key authorities: IRC § 213; Treas. Reg. § 1.213-1; Magdalin v. Commissioner; Morrissey v. United States

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202114001 [Third Party Communication:
Release Date: 4/9/2021 Date of Communication: Month DD, YYYY]
Index Number: 213.00-00
Person To Contact:
---------------------------- --------------------------, ID No. ----------------
----------------------------------- -----------------
-------------------------- Telephone Number:
----------------------------- --------------------
Refer Reply To:
CC:ITA:B03
PLR-109450-20
Date:
January 12, 2021

Legend

Taxpayers = ---------------------------------------------
Taxpayer A = ----------------------------
Taxpayer B = -----------------------------------
State = -------------

Dear -----------------------------:

This letter ruling responds to a letter ruling request dated April 13, 2020 requesting a
ruling on the deductibility of medical costs and fees arising from IVF procedures,
gestational surrogacy, and related items.

                                            FACTS

Taxpayers are a male same sex couple legally married in State. Taxpayers wish to
have a child who has as much representative DNA from the couple as possible. As
such, Taxpayer A will donate sperm and Taxpayer B’s sister will donate the egg. An
unrelated third party will be used as a gestational surrogate to carry the child to term.
As stated in the ruling request, taxpayers seek a ruling under I.R.C. § 213 that would
authorize deductions for costs and fees related to the following:

•   Medical expenses directly attributed to both spouses
•   Egg retrieval
•   Medical expenses of sperm donation
•   Sperm freezing
•   IVF medical costs

PLR-109450-20 2

• Childbirth expenses for the surrogate
• Surrogate medical insurance related to the pregnancy
• Legal and agency fees for the surrogacy
• Any other medical expenses arising from the surrogacy.

We held the conference of right on ---------------------------and advised Taxpayers’
authorized representative that we were partially adverse to the ruling request.
Taxpayers’ representative advised us that Taxpayers would like an adverse ruling.

                              LAW AND ANALYSIS

Section 213(a) allows a taxpayer to deduct expenses paid for medical care of the
taxpayer to the extent the expenses exceed 7.5 percent of the taxpayer's adjusted gross
income.

Section 213(d)(1)(A) provides that medical care includes 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.

Rev. Rul. 73-201, 1973-1 C.B. 140 and Rev. Rul, 73-603, 1973 C.B. 76 hold that
vasectomies and operations that render a woman incapable of having children affect a
structure or function of the body; therefore, costs associated with these procedures
qualify as a deductible medical expense within the limitations of I.R.C. § 213.

The medical expense deduction has historically been construed narrowly. See Atkinson
v. Commissioner,44 T.C. 39 (1965); See also Magdalin v. Commissioner, T.C. Memo
2008-293, aff'd without published opinion, 105 A.F.T.R.2d (RIA) 2010–442 (1st Cir.
2009). Deductions for medical care have been confined strictly to expenses incurred
primarily for the prevention or alleviation of a physical or mental defect or illness. See
Treas. Reg. § 1.213-1(e)(1)(ii). Generally, for an expense to be deductible, there must
be a causal relationship between a medical condition and the expenditures incurred in
treating the condition. See Jacobs v. Commissioner, 62 T.C. 813 (1974); Havey v.
Commissioner, 12 T.C. 409 (1949). The current facts do 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 I.R.C § 213(d)(1)(A) in
claiming IVF, surrogacy, and related costs are for the purpose of affecting any structure
or function of the body.

The Tax Court considered surrogacy and egg donor expenses claimed by a single,
heterosexual male, and held costs incurred in fathering children through unrelated egg
donors and gestational carriers are not deductible medical expenses under I.R.C. § 213.
See Magdalin v. Commissioner, T.C. Memo 2008-293, aff'd without published opinion,
105 A.F.T.R.2d (RIA) 2010–442 (1st Cir.2009). The taxpayer in Magdalin obtained
donated eggs to be fertilized with his sperm and transferred to a gestational carrier
using the IVF process. He deducted legal fees related to the donor and surrogacy
PLR-109450-20 3

agreements, fees and expenses of the donor and surrogate, fees to the IVF clinic, and
prescription costs. The Tax Court disallowed these costs as medical expense
deductions holding 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. Id.

In Longino v. Commissioner, the Tax Court considered the validity of various deductions
claimed by the taxpayer, including the medical expense deduction for IVF costs. T.C.
Memo 2013-90, aff’d 593 Fed. Appx. 965 (11th Cir. 2014). Longino, a taxpayer with
multiple children from prior marriages, could not deduct fees associated with IVF
procedures undergone by his former fiancé. The court held 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.

In Morrissey v. United States, the taxpayer, a male in a same sex union, sought to
deduct costs he incurred to retain, compensate, and care for the women serving as an
egg donor and gestational surrogate to bear a child. 871 F.3d 1260 (11 th Cir. 2017). The
Eleventh Circuit considered whether these expenses were incurred for the purpose of
affecting Morrisey’s body’s reproductive function within the meaning of I.R.C. § 213(d).
Morrissey conceded he was not medically infertile, but characterized himself as
“effectively” infertile because he is homosexual. The court applied the ordinary meaning
of the statutory terms “affect” and “function” in ultimately finding the IVF costs were not
deductible under I.R.C. § 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. Id at 1265. The IVF and surrogacy costs were not deductible
under this statutory language because taxpayer’s own function in the reproductive
process was to produce healthy sperm and he remained able to do so without the IVF
and surrogacy procedures.

Only costs and fees directly attributable to medical care for diagnosis, cure, mitigation,
treatment, or prevention of disease, or for the purpose of affecting any structure or
function of the body of the taxpayer, the taxpayer’s spouse, or taxpayer’s dependent
qualify as eligible medical expenses. Expenses involving egg donation, IVF
procedures, and gestational surrogacy incurred for third parties are not incurred for
treatment of disease nor are they for the purpose of affecting any structure or function of
taxpayers’ bodies. As such, payments related to the following products and services
are not deductible under I.R.C.§ 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. In contrast, however, there are a comparatively smaller number of medical
costs or fees paid for medical care directly attributable to taxpayers, examples in this
case being sperm donation and sperm freezing, that are deductible medical expenses
under I.R.C.§ 213, subject to the adjusted gross income limitation of the section.
PLR-109450-20 4

                                 CONCLUSION

Based on the facts and representations submitted, we conclude that the costs and fees
related to egg donation, IVF procedures, and gestational surrogacy do not qualify as
deductible medical expenses under I.R.C. § 213. Medical costs and fees directly
attributable to the taxpayers are deductible within the limitations of I.R.C. § 213,
including sperm donation and sperm freezing.

The ruling contained in this letter is based on information and representations submitted
by Taxpayer and accompanied by a penalty of perjury statement executed by an
appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

In accordance with the provisions of the power of attorney currently on file with this
office, copies of this letter are being sent to your authorized representative. We are also
sending a copy of this letter to the appropriate operating division director.

                                  Sincerely,



                                  BRINTON T. WARREN
                                  Chief, Branch 3
                                  Office of Associate Chief Counsel
                                  (Income Tax and Accounting)

Enclosure: Copy for § 6110 purposes

cc: