in vitro

Tax Court: No Medical Deduction for Most In Vitro Expenses

Oct 31st 2017
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The courts have approved medical deductions for unusual expenses ranging from acupuncture to birth control pills and vasectomies. However, as evidenced by a new case, Morrissey, CA-11, 9/25/17, the cost is eligible for a deduction only if it qualifies as a medical care.

The taxpayer in this case, who planned to have children with his same-sex partner, wasn’t able to deduct most of the cost associated with in vitro fertilization (IVF) expenses incurred.

According to IRS Pub. 502, Medical and Dental Expenses, medical expenses are costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners. In addition, you can count the costs of equipment, supplies and diagnostic devices needed for these purposes.

Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They don't include expenses that are merely beneficial to general health, such as vitamins or a vacation.

At tax return time, after adding all unreimbursed medical expenses, you can only deduct the amount exceeding 10 percent of your adjusted gross income (AGI). For example, if your AGI is $100,000 and you have $11,000 in unreimbursed medical expenses, your deduction is limited to $1,000. But if you have anything below $10,000 in expenses, that means no deduction.

Because of this tax law hurdle, in part, taxpayers and the IRS often clash over deductible expenses.

In the new case, the taxpayer and his partner decided to try to have children through IVF, with the taxpayer serving as the biological father. The IVF process involved collecting his sperm, using that sperm to fertilize eggs donated by one woman and then implanting the resulting embryos into the uterus of a second woman who served as a gestational surrogate.

Between 2010 and 2014, the taxpayer paid expenses relating to seven IVF procedures, three egg donors, three surrogates and two fertility specialists. All told, the IVF process cost him more than $100,000. In 2011 alone — the tax year at issue in this case — he paid almost $57,000 out of pocket for IVF-related expenses.

Of that total, only about $1,500 went toward procedures performed directly on his body — namely, blood tests and sperm collection. He spent the remaining $55,000 to identify and retain the women who served as the egg donor and the gestational surrogate. The remainder of those costs also covered compensation to those women for their services and reimbursement for their travel and other expenses and to provide medical care for them.

As a result, the Tenth Circuit Court denied a deduction for the majority of the IVF-related expenses. It only allowed the $1,500 in expenses directly relating to the taxpayer’s body — a relative drop in the bucket.

Advise your clients to scour their records at year-end to determine if they will clear the 10 percent-of-AGI hurdle. If they can, the might as well accelerate elective expenses like year-end physicals and dental cleanings into 2017 to boost their deduction.

On a side note, who says the courts don’t have a sense of humor? In this particular case, the opinion began, “This is a tax case. Fear not, keep reading.”

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