The Strange Case of the Blood Deduction

Few tax rules are as long standing and as stringently enforced by the Internal Revenue Service as the agency's blanket prohibition of deductions for the costs of commuting between home and work. The IRS classifies these travel expenditures as nondeductible personal expenses.

But most deduction-restriction rules have their exceptions. For example, the Tax Court said the IRS couldn't use the commuting ban to assess additional taxes against a professional blood donor.

For the year in issue, Margaret Green, whose blood type is the rare AB negative, earned most of her income by selling her blood to a laboratory. When filing time rolled around, she staunched the hemorrhaging to the IRS with hefty business-expense deductions for travel, medical insurance, special drugs and high-protein diet foods, and a depletion write-off for the loss of her blood's mineral content.

The tax collectors argued that the deductions should all be disallowed, as she didn't carry on a business. For the most part, however, the Tax Court sided with Margaret. It was precisely for business reasons, that is, the sale of her plasma, that she maintained a special diet and regularly traveled to the lab.

For starters, the court approved Margaret's outlays for high-protein foods and diet supplements to maintain the quality of her plasma. Moreover, she prevailed on the issue of deductions for home-to-lab travel. Said the court: "Unique to this situation, the taxpayer was the container in which her product was transported to market. Had she been able to extract the plasma at home and transport it to the lab without her being present, such shipping expenses would have been deductible as selling expenses."

No business write-off, though, for the full cost of what she spent on medical-insurance premiums. They're personal in nature and deductible only under the usual rules for medical expenses. Her medical insurance isn't comparable to insurance maintained by a business to protect against loss or damage to machinery.

Margaret also wasn't entitled to a depletion deduction for the loss of her blood's mineral content and the loss of her blood's ability to regenerate. The stopper is that Congress enacted the tax code provisions on depletion to promote the exploration and development of our nation's geological mineral resources. The court noted that "bodies and skills of taxpayers are not among the 'natural deposits' contemplated by Congress in those depletion provisions."

Voluntary Blood Donations

For those of us who donate occasionally for good works, rather than make a business out of it, the rules are standard: Your allowable deductions for charitable contributions include unreimbursed expenses incurred to do volunteer work. No deduction, though, for donating blood, except for any travel expenses to and from the blood bank, for which you can claim bus, train, or taxi charges or, if you use your car, a standard mileage rate of 14 cents a mile, plus tolls and parking charges.

How does the IRS justify this restriction? Easy: it says that you're performing nondeductible "services," not donating property. On the other hand, warns the IRS, just like Margaret and other professional donors, your reportable income includes any payment that you receive for providing blood.

About the author:

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator) and an attorney. More on this topic is available from "Julian Block's Tax Deductible Travel and Moving Expenses," available as a Kindle at Amazon.com and as a print copy at julianblocktaxexpert.com.


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