Victory! U.S. Tax Court Allow Medical Deduction!

GLAD Press Release...

Victory! On February 2, 2010, the U.S. Tax Court issued an important decision in O’Donnabhain v. Commissioner of Internal Revenue, ruling for the first time that treatment for gender identity disorder qualifies as medical care under the Internal Revenue Code, and is therefore deductible.

Ms. O’Donnabhain deducted costs related to her sex reassignment when submitting her federal tax forms in April 2002. She received her tax refund in June 2002, but six months later she was audited.

Ms. O’Donnabhain contacted GLAD, whose attorneys assisted her in appealing the tax examiner’s decision. After an initial indication by an Appeals Officer to allow the deduction, the local IRS office decided to seek a decision from Washington. The IRS Chief Counsel issued an Advice Letter on October 14, 2005, once again denying the deduction and the matter progressed to US Tax Court, where trial took place July 24 – August 23, 2007.

The Court's conclusion:

The evidence amply supports the conclusions that petitioner suffered from severe GID, that GID is a well-recognized and serious mental disorder, and that hormone therapy and sex
reassignment surgery are considered appropriate and effective treatments for GID by psychiatrists and other mental health professionals who are knowledgeable concerning the condition.

Given our holdings that GID is a “disease” and that petitioner’s hormone therapy and sex reassignment surgery “[treated]” it, petitioner has shown the “existence * * * of a disease” and a payment for goods or services “directly or proximately related” to its treatment. See Jacobs v. Commissioner, 62 T.C. at 818.

She likewise satisfies the “but for” test of Jacobs, which requires a showing that the procedures were an essential element of the treatment and that they would not have otherwise been undertaken for nonmedical reasons. Petitioner’s hormone therapy and sex reassignment surgery were essential elements of a widely
accepted treatment protocol for severe GID. The expert testimony also establishes that given (1) the risks, pain, and extensive rehabilitation associated with sex reassignment surgery, (2) the stigma encountered by persons who change their gender role and appearance in society, and (3) the expert-backed but commonsense
point that the desire of a genetic male to have his genitals removed requires an explanation beyond mere dissatisfaction with appearance (such as GID or psychosis), petitioner would not have
undergone hormone therapy and sex reassignment surgery except in an effort to alleviate the distress and suffering attendant to GID. Respondent’s contention that petitioner undertook the surgery and hormone treatments to improve appearance is at best a superficial characterization of the circumstances that is thoroughly rebutted by the medical evidence.

Petitioner has shown that her hormone therapy and sex reassignment surgery treated disease within the meaning of
section 213 and were therefore not cosmetic surgery. Thus petitioner’s expenditures for these procedures were for “medical care” as defined in section 213(d)(1)(A), for which a deduction is allowed under section 213(a).