Egg Donors Face IRS Taxation

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Egg Donors Face IRS Taxation

In California, we are not guaranteed four distinguishable seasons, however, every year, without fail, comes tax season.

The term “egg donor” can be a little misleading in that it may lead one to believe that the eggs are simply donated with no compensation.   While many donors are altruistic, there is also the aspect of monetary compensation.  Is this compensation taxable income?

In Forbes Magazine, contributing writer, Tony Nitti covers this tax revelation in his article, “New Ruling: IRS Can Tax Payments To Egg Donors As Income.”

It is important to relay that egg donation is not an instantaneous process.  It entails medical and psychological screening, injections to trigger multiple ovum and lastly, surgically harvesting these eggs for fertilization.

Nitti writes, this, “…has led to a rather big tax conundrum: do the amounts received by the donor in exchange for her eggs constitute taxable income?” He continues, “The issue has been a huge topic of conversation on egg donor message boards (yes, there is such a thing) and in the fertility industry at large. And for good reason: because until today, there was no answer. Hours ago, however, that all changed, when the Tax Court concluded that amounts received by a donor represented taxable compensation income.”

Nitti reports, “The tax consequences of dealing in the human body are largely unsettled, and they probably should be.” He continues, “As a result, the IRS and the courts have tread lightly in establishing such precedent. In fact, over 100 years of tax law reveals little more clarity about the tax consequences of dealing in the human body than 1) breast milk is considered property, the donation of which may result in a charitable contribution, and 2) donating blood may be either the sale of property or the performance of a service, dependig on the court.”

This all recently changed when the United States Tax Court decided on taxable income in Perez v. Commissioner of Internal Revenue, (2015).

Nichelle Perez,a California resident, and she entered into a contract with a California-based agency to help a woman conceive.  The case states in 2009 she underwent two donation cycles and earned $20,000.  Two contracts were drafted: one for Donor Source International, LLC and the anonymous intended parent.

“The contract with Donor Source made clear that Perez was not selling her eggs, intimating instead that she was being compensated for her physical suffering.”

While Section 61 of the IRS code defines gross income from however it is derived, “including compensation for services,” there is an exemption.

The code exemption indicates that, “Section 104(a)(2), however, which excludes from taxable income the amount of any damages (other than punitive damages) received on account of personal injuries or physical sickness.”

Perez fought hard, claiming that her compensation was from the egg donation process which involved physical sickness.

Nitti goes on to say that Perez did not report the $20,000 of taxable income, despite the fact that Donor Source issued her a 1099 tax form in that amount.

“The IRS disagreed, arguing that regardless of the contractual language, the $20,000 Perez received was in exchange for services provided; in essence, while Perez may not have been selling her eggs, she was providing a service when she went through the process of donating her eggs,” Nitti reports. “The tax law is harsh and unforgiving, and often times, precedent must be decided with an eye towards the future, and with consideration of the inevitable abuse of the authority established by enterprising taxpayers.  Thus, while the decision in Perez is sure to be unpopular, it was the correct one.”

So there you have it.  The swing of the gavel echoed taxation for egg donation.