Income Tax Deductibility of Sex-Change Operations

The Associated Press reports this story, under the headline “Mass. Woman Sues IRS Over Sex-Change Tax Deduction:”

After a tormented existence as a father, a husband, a Coast Guardsman and a construction worker, a 57-year-old suburban Boston man underwent a sex-change operation. Then she wrote off the $25,000 in medical expenses on her taxes.

But the IRS disallowed the deduction — ruling the procedure was cosmetic, not a medical necessity — in a potentially precedent-setting dispute now before the U.S. Tax Court.

Rhiannon O’Donnabhain is suing the IRS in a case advocates for the transgendered are hoping will force the tax agency to treat sex-change operations the same as appendectomies, heart bypasses and other deductible medical procedures. The case is set to go to trial July 24. ***

The U.S. Tax Court has never issued an opinion in a similar case, said Jennifer Levi, an attorney with Gay & Lesbian Advocates & Defenders, the Boston-based legal organization representing O’Donnabhain. But the IRS has ruled against allowing the deduction in at least one other case.

In a 2005 case, the IRS ruled the costs of a woman’s gender reassignment surgery and related treatments were not deductible as medical expenses. ***

In 1996, O’Donnabhain began seeing a psychotherapist who eventually diagnosed her with gender-identity disorder. Five years later, her therapist recommended sex-change surgery, finding it was a medically necessary.   A psychologist who examined O’Donnabhain concurred.

My prediction is that the government will win this one, not because the IRS  is substantively “right,” but because  the Tax Court gives tremendous deference to the agency’s interpretation of Treasury Regulations.   See Mitchell M. Gans, Deference and the End of Tax Practice, 36 Real Prop. Prob. & Tr. J. 731 (2002).

Hat tip to Ralph Stein.

-Bridget Crawford