Tax Lawyer's Blog

It’s a crazy world we live in.

Denise Lavoie of the Associated Press writes that the Tax Court has ruled that the costs of a sex change operation are tax deductible:

The U.S. Tax Court ruled yesterday that a Massachusetts woman should be allowed to deduct the costs of her sex-change operation, a decision that could have wide implications for transgender people.

“I think what the court is saying is that surgery and hormone therapy for transgender people to alleviate the stress associated with gender identity disorder is legitimate medical care,’’ said Jennifer Levi, a GLAD attorney.

The legal group, Gay & Lesbian Advocates & Defenders, which represented O’Donnabhain, said the ruling could potentially affect thousands of people a year in the U.S. who undergo similar operations.

In its decision yesterday, the tax court said the IRS position was “at best a superficial characterization of the circumstances’’ that is “thoroughly rebutted by the medical evidence.’’

The IRS said the surgery was cosmetic and not medically necessary.

Rhiannon O’Donnabhain, who was born a man, sued the Internal Revenue Service after the agency rejected a $5,000 deduction for approximately $25,000 in medical expenses associated with the sex-change surgery.

I have said before that if the courts broadened the definition of deductible medical expenses to include medical procedures that “relieve stress”, they would open the flood gates to all sorts of frivolous tax deductions. All the taxpayer need do is get a psychiatrist to say that whatever he wants to buy will reduce his stress and he’s good to go. Here’s what I wrote in July of 2008 when this case first became public:

I can see it now. People getting doctor’s letters prescribing everything from buttocks augmentation to gynecomastia (male breast tissue reduction) just to get their tax deductions. 

Most people I know hate something about their physical appearance. It has to be psychologically disturbing to have twelve chins or a 50 inch waistline. So it’s hard for me to see how, if O’Donnabhain wins this case, expenditures made by future taxpayers for surgery that makes them feel better about themselves could be denied deductibility.

Here are some other “medical” expenses I can see taxpayers claiming under the “stress relief” standard of O’Donnabhain:

• Rhinoplasty, because having a huge proboscis makes me anxious
• Penis enlargement, because having a small weenie is depressing ¹
• Breast reduction, because boys never look me in the eye
• Elevated shoes, because it’s very stressful to be “the first to know when it floods and the last to know when it rains”
• Divorce costs because “if I gotta spend another minute with you, I don’t think that I can really survive”
• Exercise equipment, because 9 out of 10 doctors say it relieves stress

But we can’t just look at the speculative consequences of the Tax Court’s ruling to determine its rightness, instead we must determine whether or not it is well-reasoned. So, before we criticize the Court, lets all read the 139 page ² opinion in Rhiannon G. O’Donnabhain v. Commissioner of Internal Revenue.

I don’t think anyone doubts that if you are born a man and want to become a woman, you have some sort of disorder. But is it really the proper medical treatment to allow the disturbed person to change his sexual identity, or is it preferable that he undergo therapy that will allow him to accept his God-given gender? Anorexics want to be skinnier, but no sane person would suggest we staple their stomachs to help them achieve it.

Here’s how the Court dealt with this apparent conundrum:

The evidence demonstrates that hormone therapy and sex reassignment surgery to alter appearance (and, to some degree, function) of GID [Gender Identity Disorder] sufferers in an effort to alleviate the distress and suffering occasioned by GID, and that the procedures have positive results in this regard. Thus, a “reasonable belief” in the procedures’ efficacy is justified.

The Court also said,

Alleviation of suffering falls within the regulatory and caselaw definitions of treatment… and to relieve is to treat according to standard dictionary definitions.

Thus, the O’Donnalbhain standard might be narrowly stated as follows:

The costs of  legitimate medical procedures that are designed to relieve the mental suffering that is associated with a generally accepted mental disorder ³ are tax deductible.

Footnotes:

¹  I am told.

²  Judging from the length of the opinion (most Tax Court rulings are less than 20 pages), it is obvious that the Court was concerned about the “flood gate” problem. Judge Gale, writing for the majority, smartly recognized the potential dangers of the ruling and attempted to narrow it’s application as much as possible. The Court even disallowed – inconsistently, I think – O’Donnabhain’s breast enhancement surgery on the grounds that it’s purpose was merely to improve her appearance. But if O’Donnabhain wants a vagina, wouldn’t he also want a set of female breasts to go along with it? Here, the Court obviously wanted to avoid setting precedent that would allow women to deduct their boob jobs, even though being flat apparently profoundly depresses young girls.

³  Presumably, the costs of medically prescribed procedures designed to relieve the mental suffering of people with purely physical disorders would also be deductible under O’Donnabhain. In other words, the stress itself doesn’t have to be a medically recognized disorder, but rather, merely the consequence of a medically recognized disorder. As I’ve said before, I don’t know of a single medical malady that doesn’t cause the sufferer stress.

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