The Curious State of Tax Deductions for Fertility Treatment Costs

Abstract

The federal tax treatment of assisted reproductive technology (ART) expenses incurred by intended parents is unclear. This lack of clarity in the tax law is curious because millions of intended parents have incurred ART expenses, which typically are quite large, over the past 40 years. ARTs include in vitro fertilization (IVF), intracytoplasmic sperm injection (ICSI), egg donation, and surrogacy. This Article addresses the question of whether various categories of taxpayers can classify the costs of specific types of ART expenses as tax deductible “medical care,” taking into account new developments in the law, including the 2017 federal appellate court decision in Morrissey v. United States.

Part I of this Article outlines the contours of the income tax deduction (and related tax benefits) for “medical care,” incorporating the statutory definition of “medical care” and the interpretation of that definition by the Internal Revenue Service (IRS) and courts. Part II applies the “medical care” definition to expenses incurred by different-sex married couples for specific types of reproductive medical care and ancillary payments. We begin our analysis with this cohort of intended parents because the IRS seems to have had such taxpayers in mind when it initially provided informal advice to taxpayers who incurred fertility treatment costs. Part II then extends the analysis to same-sex couples and unmarried individuals, focusing primarily on the U.S. Tax Court decision in Magdalin v. Commissioner, and briefly summarizing Longino v. Commissioner. In both cases, the court denied fertile unmarried men a medical expense deduction for ART expenses. Part II considers the implications of Magdalin for medically infertile men, married and unmarried women, and married different-sex couples. Part II also articulates a novel argument men could make for deducting some ART costs, notwithstanding Magdalin and Longino.

Part III explains and critiques the Morrissey opinion, which characterized all ARTs as “female” care and held that expenses incurred by a man for ARTs cannot be “medical care” unless the man is married to the woman undergoing ART procedures. This Part notes errors in the court’s tax analysis of ART expenses and dismissal of the taxpayer’s due process and equal protection claims. Part III challenges the court’s surprising assertion that heterosexuals cannot deduct “IVF-related expenses.” This Part also argues that the court’s new “IVF-related expense” terminology erroneously conflates the distinct tax consequences of different types of ARTs and unsettles what previously seemed to be settled parts of the tax law. Noting the Morrissey court’s overt moral objections to “science fiction” ARTs, Part III questions the legal relevance of such opprobrium for tax purposes. In addition, this Part explores the reproductive medical care implications of blatant IRS attempts, in other controversial “medical care” cases, to narrow the scope of the tax definition of “medical care.” Based on Courtney Cahill’s writing on “reproductive binarism,” Part IV critiques Morrissey’s focus on procreative mechanics, instead of procreative intent, and failure to address the significant family formation implications of Obergefell v. Hodges. Part IV also proposes a change in the tax definition of “medical care,” to bring “inherently medical” care – including reproductive medical care – within the tax definition of “medical care,” regardless of the taxpayer’s sex, sexual orientation, or marital status. Part V concludes.

Keywords: medical expense deduction, 213 deduction, medical care, Flexible Spending Account, Health Savings Account, ARTs, assisted reproductive technology, in vitro fertilization, IVF, Intracytoplasmic Sperm Injection, ICSI, egg donation, egg donor, surrogate, surrogacy, LGBT, family formation, adoption, Mag

JEL Classification: K34, K36, Z18