Discussion:Surrogacy - Medical Deduction?

I have clients who are a high-income gay couple and obviously file their income tax returns single since gay couples cannot legally file joint returns.

In 2007, they paid outrageous fees for a surrogate. They covered all the costs of the procedures, etc. Since the procedures went to the woman carrying the baby, does this mean either one of the taxpayers (both gay men) cannot take the deductions as medical costs?

They were smart is one regard by taking out a home equity line to get the interest as a deduction on Schedule A. But I cannot find articles or legislation anywhere that mentions surrogacy.

Any suggestions?

Steve

I know it's considered gauche to quote IRS pubs on here, but try reading Column 1 on pg 138 of Pub 17 (TY07) (the whole column really but especially under "Adopted Child"). That might clear it up, or at least give you a direction for more refined research. It may also give you some questions to ask your clients before you settle on a response. I just don't know enough about the surrogacy process to know whether this is considered an adoption or it something else in the eyes of the law.

Number: INFO 2002-0291

Release Date: 12/31/2002

Index No.: 213.02-00

Person to Contact: [Redacted text]

Telephone Number: [Redacted text]

Refer Reply To: CC:ITA:2 - GENIN-140013-02

Date: August 12, 2002

Dear [Redacted text]

In your letter of July 17, 2002, you asked whether medical and legal expenses incurred in connection with a surrogate mother and her unborn child are deductible under § 213 of the Internal Revenue Code. Although your request is not for a formal ruling, we are happy to provide you with general information.

Section 213(a) of the Internal Revenue Code allows a taxpayer to deduct the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, the taxpayer's spouse, or the taxpayer's dependents (as defined in  § 152), to the extent the expenses exceed 7.5 percent of adjusted gross income.  Section 152(a) defines a dependent as (1) an individual listed in the section (2) for whom the taxpayer provided over half of the support for the taxable year. 

A surrogate mother is, of course, neither the taxpayer nor the taxpayer's spouse, and typically is not a dependent of the taxpayers. Nor is an unborn child a dependent.

Cassman v. United States, 31 Fed. Cl. 121 (1994). Thus, medical expenses paid for a surrogate mother and her unborn child would not qualify for deduction under § 213(a).

Under very limited circumstances, legal fees may be allowable as medical care expenses. In Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969), legal expenses incurred to create a guardianship in order to involuntarily hospitalize a medically ill taxpayer were held to be deductible medical expenses because the medical treatment could not otherwise have occurred. However, legal expenses incurred in connection with a surrogate mother are typically not in connection with otherwise-deductible medical care expenses. Thus, the legal expenses likewise would not be deductible under § 213(a).

I hope this information is helpful. Please call [Redacted text] at the number above, if you have any questions.

I'll just take a long breath and swallow hard.

Thanks again so much.

Steve