HRC Blog

US Tax Court Rules Gender Reassignment Surgery is Deductible Under Tax Code

On February 2, 2010, the U.S. Tax Court issued an important decision [pdf] 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 therefore costs related to that care are deductible from federal income taxes. “This is a significant ruling for the transgender community,” said Meghan Stabler, HRC Board of Director and transgender advocate. “The process of sex reassignment effectively treats a widely recognized medical condition, improving health and life outcomes. But transgender men and women alike primarily pay for treatment out of pocket due to discrimination in most health insurance plans. Being able to deduct these expenses, just as with any other medical need, sends a clear message that all transgender people – as well as employers with inclusive health insurance plans – can expect dignity, fairness and equal treatment from the IRS.” The court ruled that sex reassignment surgeries qualify as deductible medical expenses under IRS code § 213, reversing a previous IRS position that had denied transgender people the ability to list expenses for medical services related to sex reassignment as tax deductions. The ruling holds that gender identity disorder is considered a “disease” within the meaning of  § 213(d)(1)(A) & (9)(B) and that hormone therapy and sex reassignment surgeries are recognized treatments for disease within the meaning of  § 213(d)(1)(A) & (9)(B), and thus not “cosmetic surgery” excluded from the definition of deductible “medical care” by § 213(d)(9)(A). While the court did not allow Ms. O’Donnabhain to deduct the costs of her breast augmentation, the opinion recognized that breast augmentation is considered a sex reassignment surgery in certain cases, and would be deductible for other transgender people with supporting medical documentation. This is a landmark win for GLAD and our community that is sure to help many transgender Americans, but it was long in coming for Ms. O’Donnabhain. As part of her treatment process, Ms. O'Donnabhain began hormone therapy in 1997; she later began living as a woman and changed her legal name. In 2001, after undergoing the sex reassignment surgeries recommended by her psychotherapist, psychologist and surgeon, O'Donnabhain reported finally feeling a sense of comfort with her body. O'Donnabhain claimed a medical expense deduction for bills and expenses relating to her surgeries on her 2001 income tax return. But within 6 months of receiving her tax refund in June 2002 she was audited. The IRS ultimately disallowed the deduction and issued a notice of deficiency, ruling that sex reassignment surgeries were cosmetic and elective. Yesterday’s court decision reversed that and held that transition-related treatments and services are not cosmetic and are medically necessary. More information on medically necessary treatment is available from the World Professional Association for Transgender Health (pdf). Let’s extend our congratulations and heartfelt thanks to Ms. O’Donnabhain and to GLAD and their legal team for their groundbreaking work.

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