gender reassignment surgery tax deductible

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• Same Sex Tax

The IRS Agrees: Gender Reassignment Surgery Is a Deductible Medical Expense

Are the expenses incurred for gender reassignement surgery deductible medical expenses under §213 of the Internal Revenue Code or are they nondeductible expenses for cosmetic surgery? Rhiannon O’Donnabhain thought so and so she deducted them in 2001. The IRS denied the deduction and she sued in Tax Court. The Tax Court ruled in her favor in 2010 and now the IRS has acquiesced in that decision.

The IRS issues an acquiescence when it agrees with a decision by the Tax Court. This is essentially the equivalent of a revenue ruling saying that such expenses are deductible. For a copy of the AOD (Action on Decision) see here .  

O’Donnabhain incurred her costs in 2001 and deducted them on her 2001 tax return. She received her tax refund and in 2002 she was audited. GLAD tells us that the local IRS folks were at first inclined to allow the deduction, but for them it was an issue of first impression and so they sought guidance from the National Office – sometimes we call this a request for technical advice or a field service advisory – but more and more in recent days this advice is published as Advice from Chief Counsel – a CCA – and that’s what ultimately led to the tax court battle in this case.

But if you do a little detective work, you’ll find that the initial response from the Office of Chief Counsel was supportive of the deduction. In 2003, about the time that this case was in audit, a PLR was issued (PLR 200324011). It was carefully worded so as not to attract attention. It simply provided the following information:The taxpayer has been diagnosed with an unidentified disorder and is planning to undergo an unidentified surgical procedure.

That ruling concluded that because the proposed surgery would affect a “structure or function of the body” it should qualify as medical care under §213. The IRS also noted that the pproposed surgery was not directed primarily at improving the taxpayer’s appearance and so was not a cosmetic procedure.

That was written by staffers in office of Chief Counsel who wanted to get the law right. But I’m told that the then Commissioner got whiff of the proposed advice and demanded a different result, citing Bush family values as his guide. And the result was the CCA denying the deduction and leading to this litigation.

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Transgender-inclusive benefits: taxability of related medical expenses.

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 necessary 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.

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 -- a finding that closely aligns with the WPATH Standards of Care.

This ruling should encourage employers to treat coverage for medically necessary transgender treatment (treatment that follows the WPATH SOC) no differently than other medically necessary treatments for tax purposes. Notably, the IRS did not appeal the Tax Court’s decision. Employers and individuals should consult with a tax expert, such as a CPA or tax attorney.

• In re Rhiannon O'Donnabhain
• United States Tax Court: In re Rhiannan O'Donnabhain (PDF) Feb. 2, 2010

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US Tax Court Rules in Favor of SRS Deduction

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In a closely-watched case, the United States Tax Court overwhelmingly ruled on Tuesday in O'Donnabhain v. Commissioner of Internal Revenue that a transgender woman's medical expenses for hormone therapy and sex reassignment surgery were medically necessary and therefore tax-deductible under Federal law. After considering extensive medical evidence and testimony from leading medical experts, the court rejected an interpretation of the law that would consider transgender people's medical treatment different than all other medically necessary treatment recommended by major medical and psychological organizations.

"Finally, we have recognition from the courts of what transgender people and our medical providers have known all along-that transition related care is absolutely necessary health care for the wellbeing of many transgender people," said Mara Keisling, the Executive Director of the National Center for Transgender Equality. "Being able to deduct a portion of costly medical treatments will make it more affordable for transgender people to follow through with the care their doctors prescribe. For the IRS to treat transgender people and non-transgender people differently was discrimination, plain and simple, and now that has ended."

The court's decision does not mean that all medical treatments and procedures associated with gender transition will be tax-deductible. Like all other medical treatments, deductibility will be based on the medical necessity of the treatment as determined by qualified medical providers in accordance with recognized clinical standards of care. The court recognized, as have the American Medical Association, American Psychological Association and many others, based on overwhelming medical evidence, that transition-related health care is non-cosmetic, medically necessary healthcare.

The case stems from a decision by the IRS to reject Rhiannon O'Donnabhain's deduction of her expenses for sex reassignment surgery in 2001 from her federal income tax. The case went to trial in 2007. Ms. O'Donnabhain was represented by the Transgender Rights Project of Gay & Lesbian Advocates & Defenders (GLAD).

NCTE applauds GLAD's groundbreaking and powerful work and perseverance to win this important victory, and thanks Rhiannon O'Donnabhain for her willingness to stand up and challenge the inequity of the IRS's policies. Her courage and determination will have an impact on the health of transgender people around our country for many years to come.

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• Life Stages
• Tax Breaks and Money
• View all Tax Center topics

I am itemizing my tax return. Which medical expenses can I deduct?

When itemizing your medical expenses, the medical expenses you can deduct include:

For the treatment of a disease:

If one of those applies, you can also include the associated costs for:

• Diagnostic services

The expenses must be primarily to improve or prevent a physical or mental deficiency or illness.

Deductible medical expenses include:

• Acupuncture
• Alcoholism treatment
• Ambulance service
• Annual physicals
• Birth control
• Braille books and magazines for the visually impaired
• Breast pumps and supplies
• Chiropractic care
• Christian Science practitioner care
• Contact lenses and the supplies required to maintain them
• Necessary dental treatment (doesn’t include whitening)
• Diagnostic devices (Ex: blood sugar test kit for a diabetic)
• Drug addiction treatment
• Prescribed medications
• Eye glasses
• Eye surgery
• Fertility enhancement
• Guide dog or other service animal
• Hearing aids
• Insurance premiums
• Lead-based paint removal (not repainting)
• Certain Medicare A, B, and, D
• Nursing home or services
• Physical or occupational therapy
• Psychiatric care
• Psychologist
• Sex-reassignment surgery and related hormone therapy for the treatment of gender-identity disorder disease
• Sterilization
• Smoking cessation programs except over-the-counter nicotine gums and patches
• Transplants
• Transportation to obtain medical care

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• Tax Matters

Sex-Change Surgery Deductible Medical Expense

• Individual Income Taxation

In a case of first impression, the Tax Court ruled that the costs of hormone therapy and sex reassignment surgery for an individual diagnosed with gender identity disorder (GID) qualified as deductible medical expenses. However, the court also said the cost of breast augmentation surgery was cosmetic surgery and not deductible.

Robert Donovan, born anatomically male, began to experience discomfort with his gender during childhood and began to secretly wear women’s clothing at age 10. This discomfort persisted through his adulthood, marriage and fatherhood. In 1997, Donovan’s psychotherapist diagnosed him with severe GID. Donovan underwent a three-part treatment plan recommended by a professional association’s treatment guidelines for individuals with severe GID, including (1) hormonal therapy; (2) a trial period of presenting himself publicly as a woman; and (3) “sex reassignment” surgery, including breast augmentation. In 2000, Donovan legally changed his name to Rhiannon G. O’Donnabhain. On her 2001 tax return, O’Donnabhain claimed a medical expense deduction under IRC § 213 for $21,741, including $14,495 for the genital sex reassignment surgery; $4,500 for the breast augmentation; and $382 for the hormonal therapy. The IRS disallowed the deduction, and O’Donnabhain sought relief in the Tax Court.

The IRS challenged the classification of GID as a disease, arguing that it is not a significant psychiatric disorder because it “did not arise from a pathological process,” but instead is a “social construction” that has been “medicalized.” The IRS also challenged whether O’Donnabhain’s condition was properly diagnosed. In addition, the IRS disputed whether the procedures treated a disease, since, it said, there was no scientific proof of their efficacy. It also said sex reassignment surgery was cosmetic surgery, for which IRC § 213(d)(9) denies a deduction unless necessary to address a congenital abnormality or its results, or injury or disfigurement caused by a disease, accident or trauma.

The court rejected the IRS’ arguments, holding that GID is a well-recognized mental disorder that satisfies the definition of a disease for which, in severe cases, sex reassignment surgery is an appropriate and effective treatment. The court noted that GID is included in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders (DSM). The court was likewise persuaded that O’Donnabhain was properly diagnosed. The court relied heavily on the credibility of the health care professional who treated O’Donnabhain and expert witnesses who testified on her behalf. It also noted well-recognized medical references and the “Benjamin standards” that have been developed for treatment in such cases, calling them “widely accepted standards of care” in the psychiatric profession.

The court allowed a deduction for the genital sex reassignment surgery and the hormonal therapy but disallowed a deduction for the breast augmentation, on the basis that it was cosmetic surgery undertaken “merely to improve appearance.”

The case yielded five minority opinions—one concurring, two concurring with the result but not all its reasoning, and two (written or agreed to by five of the 15 judges) dissenting from the majority’s holding of deductibility for genital sex reassignment surgery. This case demonstrates how the interpretation of the term “disease” is evolving. For example, posttraumatic stress disorder, which some war veterans suffer from, was not included in the DSM until 1980. In 2002, the IRS acknowledged in Revenue Ruling 2002-19 that “obesity is medically accepted to be a disease” and began to allow taxpayers to take a medical expense deduction for participation in a weight-loss program if prescribed by a doctor.

By Jean T. Wells , CPA, J.D., assistant professor of accounting, Howard University, Washington, D.C., and Gwendolyn McFadden , CPA, J.D., LL.M., associate professor of accounting, North Carolina A&T State University .

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The Economy

Sex change surgery is now tax deductible.

The Internal Revenue Service isn’t going to fight people any longer who want to deduct the cost of gender reassignment surgery from their taxes.

According to a so-called  acquiescence filed earlier this month, IRS officials notified the Tax Court that it would abide by a 2010 decision that held that some medical expenses from such surgeries could be deducted. It also ends the nearly decade-long battle that Rhiannon O’Donnabhain, who was born male and fathered three children, waged against the IRS to deduct $5,000 in expenses she incurred to bring her anatomy in line with her gender identity. The IRS at first denied her request claiming the procedure was entirely cosmetic.

( MORE: Is This the Beginning of the End for the Dollar Bill )

O’Donnabhain’s victory highlights the struggle that people with Gender Identification Disorders face as they undergo the long, painful and potentially costly treatment to contour the bodies that they were born with into what they think they ought to be. Each year more than 1,000 people undergo the surgery, which costs tens of thousands of dollars and often isn’t covered by insurance, according to the Gay and Lesbian Medical Association.

“There is something to be said when a federal court recognizes general identity disorder as a serious medical condition,” says Karen Loewy, an attorney with Gay & Lesbian Advocates & Defenders, the non-profit that represented O’Donnabhain, in an interview. The IRS is saying that it’s going to do what the Tax Court tells them to do, Loewy says.

The case was not a complete victory for O’Donnabhain. Her request to deduct expenses for her breast augmentation were not allowed because it was directed at improving her appearance and not to treat disease as construed by the tax code.

Anthony Infanti, a University of Pittsburgh law professor who followed the case, tells TIME Moneyland that the court didn’t explicitly rule that out for future cases. “It was more fact-specific to that situation,” he says.

The Tax Court’s panel of judges could hardly be accused of bending over backwards to accommodate O’Donnabhain. Even in his concurring opinion, Tax Court Judge Mark V. Holmes lamented that making gender identity disorder a tax-deductible medical expense drafts “our court into culture wars in which tax lawyers have heretofore claimed noncombatant status.”

And some of the court’s language disturbed Infanti.  “It clearly showed how political tax law can be,” he said.  “Some of the dissenting opinions were clearly hostile to the taxpayer.”

( MORE: Warren Buffett is Buying. Is it Time to Celebrate? )

O’Donnabhain told the Tax Court that she first remembered being uncomfortable with her male gender at the age of 10. As her discomfort grew in adolescence, she secretly dressed in women’s clothing. O’Donnabhain later married but got divorced in 1996. She had the surgery in 2002 and was audited by the IRS in 2003. The case wound its way through IRS bureaucracy until 2006 when the lawsuit was filed.

Since the legal battle started, O’Donnabhain, who is retired, has moved on with her life and recently celebrated the wedding of one of her children. The IRS decision gave O’Donnabhain a “sense of closure,” Lowey said.

“From the beginning it was not about the money,” she said.  “She just wanted fair and equitable treatment.”

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Transgender Woman, IRS Fight over Tax Deduction

Tovia Smith

Rhiannon O'Donnabhain says she spent more than $25,000 on sex-reassignment surgery in 2001, and claimed a $5,000 deduction she says she is entitled to. But the IRS denied the deduction, saying it was for cosmetic purposes. Maineframe Photographics, Inc. hide caption

Rhiannon O'Donnabhain says she spent more than $25,000 on sex-reassignment surgery in 2001, and claimed a $5,000 deduction she says she is entitled to. But the IRS denied the deduction, saying it was for cosmetic purposes.

A Massachusetts transgender woman is suing the IRS for the right to claim her sex-change operation as a medical deduction on her income taxes.

Rhiannon O'Donnabhain says she spent more than $25,000 on sex-reassignment surgery in 2001, and claimed a $5,000 deduction she was entitled to. But the IRS denied the deduction, saying the surgery was essentially cosmetic and therefore not allowed under tax law. The case is now before a federal judge in Boston.

Changing a Troubled Life

In the trial that began in July, O'Donnabhain, 64, described a lifetime of suffering from Gender Identity Disorder, or GID. She says she never had the words for it as a child, but she always felt that she was born into the wrong body.

She described growing up as a young boy, in a conservative, Catholic family and trying to suppress the feelings. She played with boys, worked in construction, married a woman and fathered three children. But O'Donnabhain says she grew increasingly tormented.

"It was horrible. Absolutely horrible. I was thinking suicide was probably the only way out of this," she said.

Eventually, O'Donnabhain started therapy and began the transition to life as a female. She changed her name, started dressing like a woman and took feminizing hormones to change her body. But O'Donnabhain says it wasn't enough. "I was a male with breasts. I looked like a freak."

In 2001, O'Donnabhain underwent sex-change surgery. She had her male genitals removed and received every procedure doctors provided to give her a female body — from vaginal reconstruction to breast augmentation. For the first time in her life, O'Donnabhain says she felt at peace.

"I'm just so glad I did this," she said.

Battling the IRS

While O'Donnabhain believes her sex-change operation literally saved her life, the IRS argues that it falls into the category of "cosmetic surgery" under its tax code and is not allowed as a deduction. Agency officials declined to be interviewed for this story, but in court they argued that sex-reassignment surgery deals with the body's appearance more than function, and that GID is not a "disease" or "illness" as defined by tax laws.

"The IRS is arguing that gender-reassignment surgery is really no different, conceptually, than a tummy tuck or a Botox injection," said Theodore Seto, a professor at Loyola Law School, Los Angeles. "The argument is: 'Look, she is changing her appearance so as to look better, to be happier with herself. It doesn't treat any underlying problem.'"

But O'Donnabhain accused the IRS of discrimination. She said her surgery was meant to treat a legitimate and widely recognized medical condition.

"It's really astonishing that the IRS is taking a position that they get to second-guess the determinations of a taxpayer's medical care providers," said O'Donnabhain's attorney, Karen Loewy. "The medical community gets to decide what is medical care — not the IRS."

But the IRS counters that the medical community is split. While some see sex-reassignment surgery as the closest thing medicine has to a cure for GID, others see the surgery as basically mutilating a person's properly functioning anatomy.

"I think the problem doesn't lie in their genitals, it lies in their mind, and we should be working on their mind," says Paul McHugh, a professor of psychiatry at Johns Hopkins University. "We don't do liposuction on people with anorexia nervosa to help them to be more thin. We encourage them to see that this is a misdirection of human interest."

But O'Donnabhain points out that even the therapy she sought for her GID was rejected by the IRS as a medical expense, proving the agency's bias.

A Growing Number of Cases

O'Donnabhain's case is the latest in a growing number of legal tangles over transgender rights. Courts around the nation are grappling with a slew of lawsuits — from prisoners demanding sex-change hormones as part of their medical care and kindergarteners asking to be called "she" instead of "he," to transsexuals seeking to marry or use the public restroom of their new gender.

"There has been an incredible amount of litigation, but the law is all over the place," said Arthur Leonard, a professor at New York Law School. "It all comes down to the sort of fundamental question of whether the law will accept what transgender people say is their reality. And that requires us to rethink our concept of a dimorphic world where everything is 'x' and 'y.' Here's something that's sort of in the middle."

Ultimately, the transgender community faces an irony that is not lost on O'Donnabhain. That is, the fight to be legally accepted and accommodated by the IRS actually depends on being seen as pathologically diseased or ill.

"It's a Catch-22," O'Donnabhain said. "I have to accept the stigma of being labeled as having a disorder [or] a mental condition ... in order to get benefits. I haven't liked this diagnosis from the very beginning. But I've got to play the game."

Related NPR Stories

The difficulties and rewards of gender transition, all things considered, transgender voice therapy, helping transgender women find a new voice, better treatment for gay, transgender workers, 'all my children' features transgendered character.

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• EXPENSES & DEDUCTIONS

Tax Court Rules on Medical Necessities

• Individual Income Taxation
• Specialized Issues

Since the 1990 enactment of Sec. 213(d)(9), 1 which stipulates that expenses for cosmetic surgery are not deductible, the IRS has subjected medical expense deductions to increased scrutiny. Nonetheless, over the past decade the definition of “deductible medical expenses” has expanded to include breast reconstruction subsequent to mastectomy (cancer); laser eye surgery (myopia); nonprescription medical supplies; and expenses for obtaining an egg donor (infertility treatment). 2 In O’Donnabhain 3 the Tax Court has expanded the list of deductible medical expenses to include hormone therapy and sex reassignment expenses for the treatment of gender identity disorder (GID).

On her 2001 tax return, Rhiannon G. O’Donnabhain claimed itemized medical deductions for GID treatment. The IRS denied the deductions in January 2006 via a statutory notice of deficiency, and the taxpayer petitioned the Tax Court in March 2006. 4 Nearly four years later, on February 2, 2010, the Tax Court ruled in favor of O’Donnabhain. The 90-day appeal period passed without an appeal by the IRS.

O’Donnabhain was born a male; however, from an early age she experienced discomfort with her gender identity and had a history of secretly wearing women’s clothing. As an adult, she earned an engineering degree, served in the U.S. Coast Guard, was married, and fathered children. 5 In 1996, she consulted psychotherapist Diane Ellaborn, a specialist in the diagnosis and treatment of gender-related disorders. After approximately 20 sessions, Ellaborn diagnosed O’Donnabhain with gender identity disorder (GID). GID is listed in the Diagnostic and Statistical Manual of Mental Disorders 6 (DSM-IV-TR); its severity is ranked as mild, moderate, or severe. A regimen of treatment for the disorder has been documented since 1979 in the Benjamin standards of care, a widely accepted medical protocol. 7

Ellaborn determined that the taxpayer suffered from severe GID and prescribed a three-step treatment plan recommended by the Benjamin standards: hormonal sex reassignment (hormone therapy requires one psychotherapist recommendation); real-life experience (living as the opposite gender for at least 12 months); and sex reassignment surgery (subsequent to the real-life experience; requires two psychotherapist recommendations).

Under the treatment plan, O’Donnabhain received feminizing hormones from 1997 to 2001 and initiated the real-life experience in 2000. In July 2001, Ellaborn and a second psychotherapist recommended gender reassignment surgery. 8 O’Donnabhain completed sex reassignment surgery (including breast augmentation) in October 2001 and claimed a $21,741 itemized deduction for the unreimbursed GID medical care expenses.

Issue and Law

At issue was whether O’Donnabhain’s expenses for hormone therapy, sex reassignment surgery, and breast augmentation surgery were deductible medical expenses. The Tax Court analyzed Sec. 213 and the related regulation regarding medical care expenses. Specifically, it distinguished medically necessary procedures versus cosmetic procedures, focusing on the definition of a disease and its related treatment.

Taxpayers are allowed an itemized deduction for uncompensated medical care expenses that exceed 7.5% of adjusted gross income. 9 Medical care expenses include the diagnosis, cure, mitigation, treatment, or prevention of disease or expenses incurred for affecting any structure or function of the body. 10 The expenses must be primarily for the prevention or alleviation of a physical or mental defect or illness. 11

In 1990, Sec. 213 was amended to exclude cosmetic surgery from the medical care definition. 12 Cosmetic surgery merely improves appearance; it does not promote proper body function or prevent or treat illness or disease. 13 However, cosmetic surgery expenses are allowed if the procedure is necessary to improve a deformity due to a congenital abnormality, personal injury (via accident or trauma), or disfiguring disease. 14

Expert Witness Testimony

The taxpayer’s expert witness was Dr. George R. Brown, a licensed, board-certified adult psychiatrist who has published articles and book chapters on GID topics and has seen nearly 500 GID patients in clinical and academic settings. 15 Brown asserted that “GID is a legitimate mental disorder” (recognized in DSM-IV-TR) but that “there are no biological or laboratory tests that may be used” for diagnosis—as is the case for most other mental disorders per DSM-IV-TR. According to Brown, GID treatment includes psychotherapy and at least one of the three steps in the Benjamin standards of care (emphasizing psychotherapy alone has not been documented as an effective treatment for severe GID). Brown testified that sex reassignment surgery is generally medically necessary to treat severe GID, that the surgery is not cosmetic (i.e., not done to improve appearance), and that “positive therapeutic outcomes” have been documented in the scientific literature. He agreed that O’Donnabhain’s GID diagnosis and treatment (including sex reassignment surgery) were appropriate and medically necessary.

The IRS used two expert witnesses, Dr. Chester W. Schmidt and Dr. Park Dietz. Schmidt is a licensed, board-certified adult psychiatrist and an academic. The court noted that he had not been listed as an author of GID research (journal articles or book chapters), nor had he directly treated GID patients since the mid-1980s; however, the court commented that “he has been active in the clinical and teaching aspects of transsexualism.” 16

Schmidt testified that he was uncertain whether GID is a mental disorder on the basis of GID patient heterogeneity (presentation, personality, and motivation) and lack of scientifically supported etiology (i.e., cause and origin). Similarly, he maintained that there was “no conclusive scientific proof that GID is the result of a genetic or congenital abnormality.” Even though Schmidt was unaware of any professional disagreement with the Benjamin standards of care, except for those who consider sex reassignment unethical, he claimed that those standards were merely guidelines. Nonetheless, he agreed with the standards’ treatment protocol, except that psychotherapy should be mandatory (rather than optional) for sex reassignment candidates. Finally, he believed that psychotherapists should be neutral to hormone therapy or surgery because there is little scientific evidence supporting the effect of the procedures on GID. He concluded that the therapy and surgery “are elective and not medically necessary.” 17

Dietz is also a licensed, board-certified psychiatrist and an academic. He is a forensic psychiatry specialist with published research in sexual, criminal, and antisocial behavior. His expertise was procured to determine whether GID is a disease or an illness. Dietz agreed that GID is a mental disorder. However, he disagreed that it is a disease or an illness because there is no established pathological process, which he believed is a necessary condition. Moreover, he asserted that a listing of a mental disorder in the DSM-IV-TR does not indicate that the condition is a disease. Rather, he testified that the mental disorder must have a demonstrated “organic or biological origin” to be a disease. 18

The Tax Court contended that both the deduction for medical care and the exclusion for cosmetic surgery depend on the meaning of “treatment” and “disease.” 19 A medical expense is deductible if it is for the treatment of a disease. 20 Similarly, if a procedure treats a disease, it is not cosmetic surgery 21 and is deductible. The court concluded that there is no difference between the noun “treatment” and the verb “treat.” Specifically, if “a procedure constitutes ‘treatment’ of a ‘disease,’ it both precludes ‘cosmetic surgery’ classification under section 213(d)(9) and qualifies the procedure as ‘medical care’ under section 213(d)(1)(A).” 22

Definition of Disease

The Tax Court found that GID satisfies the statutory definition of disease. It concluded that disease does not require etiology (i.e., an identifiable organic or physiological cause), that a mental disorder is a disease, that GID is a mental disorder, and that the taxpayer suffered from GID.

Etiology: The court noted that the IRS relied solely on Dietz’s testimony that GID was not a disease because it lacked a pathological process. It admonished the IRS for using expert testimony to establish the meaning of a statutory term because that is the judge’s domain and using an expert to do so is improper. 23 The court also noted that Dietz’s interpretation contradicted prior case law, which has established mental disorders as diseases absent “organic or physiological origin or cause.” 24 Similarly, the court concluded that both the legislative history and regulation treat disease as a physical or mental defect rather than the expert’s stringent definition, which requires an identifiable organic or physiological cause, and highlighted the taxpayer’s expert testimony that “most mental disorders listed in the DSM-IV-TR do not have demonstrated organic causes.”

Practice tip: Since, as was noted in this case, the Tax Court rarely uses expert testimony to define statutory terms, practitioners should ensure that substantiation of the claimed definition of a statutory term comes from accepted authoritative sources. The Tax Court has a history of relying upon dictionary definitions and legislative intent. 25

Mental disorder: The court emphasized that case law establishes two factors supporting that mental conditions are a disease. It was satisfied that the taxpayer’s psychotherapist and all three expert witnesses had substantiated the first factor—a professional mental health diagnosis that the condition impairs normal function and warrants treatment. 26 Ellaborn diagnosed the taxpayer with severe GID, and the experts concurred that GID may lead to autocastration, autopenectomy, and suicide if untreated.

Similarly, the court found that the second factor—the condition is listed in a medical reference text 27 —was substantiated. Not only did the DSM-IV-TR list GID as a mental disorder, but all three experts acknowledged the DSM-IV-TR as the primary psychiatric diagnostic tool.

Further, the court deemed GID a “serious, psychologically debilitating condition.” It found support for this point in the testimony of the taxpayer’s expert witness that GID produces “significant distress and maladaption.” The court also cited psychiatric reference texts that stated that adult GID generally causes distress and that before it was a recognized disorder patients often self-mutilated or committed suicide. 28

In addition, the court pointed out that a majority of the federal circuits have held GID to be a mental disorder for purposes of an individual’s Eighth Amendment rights. The Eighth Amendment has generally been interpreted to require that prisoners receive adequate medical care (i.e., neglecting medical care results in cruel and unusual punishment). The Tax Court cited seven opinions in which a federal circuit court held that severe GID (or transsexualism) is a “‘serious medical need’ for purposes of the Eighth Amendment.” 29

Practice tip: Medical care costs for a particular condition are more likely to be held to be deductible if medical care for that condition previously has been held to be required for Eighth Amendment purposes in the appellate circuit in which the taxpayer resides.

Taxpayer Suffered from GID

The court was convinced that the taxpayer had GID based on the psychotherapist’s diagnosis, including the elimination of other medical conditions (depression and transvestic fetishism), and her reaction to the prescribed treatment plan. Unless a professional lacks qualifications to make a medical diagnosis, the court defers to the professional judgment of the practitioner treating the patient. 30

Treatment: The Tax Court determined that hormone therapy and sex reassignment surgery, which alter physical appearance and provide a psychological calming effect, treat GID since they alleviate distress (Regs. Sec. 1.213-1(e)(1)(ii)). However, it did not uphold the breast augmentation surgery as a medically necessary treatment, even though it is a prescribed GID treatment under certain conditions.

Based on the testimony and other evidence (i.e., the Benjamin standards and various medical texts) presented at trial, the Tax Court found that the three-step treatment hormone therapy, real-life experience, and sex reassignment surgery that O’Donnabhain underwent was an appropriate and widely accepted treatment for GID. Moreover, other courts have upheld the Benjamin standards. 31 Although the IRS’s experts questioned scientific proof of the treatment’s effectiveness, the court was not convinced by this testimony and it made clear that a consensus on the efficacy of a treatment method is not necessary for a Sec. 213 deduction. 32

Similarly, the court found that Schmidt’s assertion that some professionals disagree with the Benjamin standards because they consider sex reassignment unethical was not reason to deny a deduction. The court used abortion as an analogy, noting that an illegal procedure would be grounds for denial but ethical perceptions are not. 33 The court also dismissed Schmidt’s claim that reassignment surgery was not medically necessary, relying on the expert testimony and case law in finding that reassignment surgery is medically necessary for severe GID. 34

Breast augmentation surgery: The Tax Court evaluated the augmentation surgery separately because the IRS argued that the taxpayer had normal breasts prior to the surgery. The IRS asserted that such augmentation was cosmetic under Sec. 213(d)(9)(B) because it improved appearance, had no impact on body function, and did not treat the disease. Under the Benjamin standards, if after 18 months of hormone therapy the breast enlargement was not sufficient for the patient to be comfortable in her gender role, breast augmentation could be performed. However, the Benjamin standards require documentation from both the physician prescribing the hormones and the surgeon. The presurgical documentation presented at trial did not satisfy the court because it did not meet all of the Benjamin standards’ criteria. Specifically, only the surgeon had made a written record, and thus the evidence did not meet the requirement that the endocrinologist prescribing hormones and the surgeon performing the GID surgery document “breast-engendered anxiety” prior to the augmentation surgery. 35

Practice tip: Practitioners should ensure that appropriate medical documentation is complete. The primary reason for the Tax Court’s denial was inadequate documentation. Similarly, the concurring opinion suggests that in this case the medical notes may have been taken out of context. 36

With this decision, the Tax Court expands the scope of the medical expense deduction and the definition of what is “medically necessary.” This case establishes the precedent that GID is a mental disorder (disease) for purposes of the medical expense deduction and that hormone therapy and sex reassignment treat the disorder. Similarly, since sex reassignment treats the disease, it is not cosmetic surgery. Therefore, the medical care expenses are deductible. Although it did not allow a deduction for the taxpayer’s breast augmentation surgery in this case, the court disallowed the costs because the taxpayer had not shown with proper documentation that breast augmentation had been determined to be a necessary part of the GID treatment, as required by the Benjamin standards.

In O’Donnabhain , the Tax Court takes a broad view of Sec. 213 medical care, ruling that etiology (i.e., a physical or organic cause for the disease) is not necessary—the cost of surgery that does not address a physical condition can be deductible under Sec. 213(d)(9). It also holds that consensus in the medical community about the efficacy of a treatment is not necessary for its costs to be deductible. Finally, it narrows the exclusion for cosmetic surgery by saying that if surgery treats a disease, it is not cosmetic (a point that the dissent in the case vigorously disagreed with).

This was a case of first impression, and it remains to be seen if the Tax Court has created a blueprint for establishing the deductibility of costs for treatments for other disorders that are uncommon or have no physical etiology. It has been over 30 years since a court established that sex reassignment surgery was medically necessary and was covered by insurance. 37 Now the Tax Court has added sex reassignment surgery to the list of tax-deductible medical expenses.

1 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508.

2 Rev. Ruls. 2003-57 and 2003-58, 2003-1 C.B. 959; IRS Letter Ruling 200318017 (5/2/03).

3 O’Donnabhain , 134 T.C. No. 4 (2010).

4 The total deficiency for the 2001 tax year was $5,679, with $5,115 attributable to the medical deductions. United States Tax Court Petition, O’Donnabhain , Docket No. 6402-06 (March 31, 2006).

5 O’Donnabhain , slip op. at 3–4.

6 American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders (4th ed. text revision 2000).

7 The Harry Benjamin International Gender Dysphoria Association originally published the standards in 1979. The successor organization, World Professional Association for Transgender Health (WPATH), publishes GID standards of care. As of February 2001, the original 1979 standards had been through six revisions. The Tax Court chose “Benjamin standards of care” as its moniker.

8 See O’Donnabhain , slip op. at 4–6, for the psychotherapist’s details on diagnosis and treatment.

9 Sec. 213(a).

10 Sec. 213(d)(1)(A).

11 Regs. Sec. 1.213-1(e)(1)(ii).

12 Sec. 213(d)(9). The Tax Court noted that there are no cases of precedential value for interpreting the cosmetic surgery exclusion ( O’Donnabhain , slip op. at 30, citing Al-Murshidi , T.C. Summ. 2001-185, where determination was made under Sec. 7463).

13 Sec. 213(d)(9)(B).

14 Sec. 213(d)(9)(A).

15 O’Donnabhain , slip op. at 14–15.

16 Id. at 17.

17 Id. at 20.

18 Id. at 22.

19 Sec. 213.

20 Sec. 213(d)(1)(A).

21 Secs. 213(d)(9)(A) and (B).

22 O’Donnabhain , slip op. at 33–34.

23 Id. at 35, citing Nieves-Villanueva v. Soto-Rivera , 133 F.3d 92, 99 (1st Cir. 1997); and Prigmore , 243 F.3d 1, 18 n.3 (1st Cir. 2001).

24 O’Donnabhain , slip op. at 37, citing Fay , 76 T.C. 408 (1981); Jacobs , 62 T.C. 813 (1974); Fischer , 50 T.C. 164 (1968); Starrett , 41 T.C. 877 (1964); Hendrick , 35 T.C. 1223 (1961); and Sims , T.C. Memo. 1979-499.

25 See, e.g., South Jersey Sand Co. , 30 T.C. 360 (1958).

26 O’Donnabhain , slip op. at 37–38, citing Fay , 76 T.C. 408 (1981); Jacobs , 62 T.C. 813 (1974); Fischer , 50 T.C. 164 (1968); and Hendrick , 35 T.C. 1223 (1961).

27 O’Donnabhain , slip op. at 39, citing Starrett , 41 T.C. 877 (1964).

28 Sadock and Sadock, eds., Kaplan & Sadock’s Comprehensive Textbook of Psychiatry 1646, 1659 (Lippincott Williams and Wilkins 2000); Gelder, López-Ibor, and Andreasen, eds., New Oxford Textbook of Psychiatry 914 (Oxford University Press 2000).

29 O’Donnabhain , slip op. at 45, citing De’lonta v. Angelone , 330 F.3d 630, 634 (4th Cir. 2003); Allard v. Gomez , 9 Fed. Appx. 793, 794 (9th Cir. 2001); Cuoco v. Moritsugu , 222 F.3d 99 (2d Cir. 2000); Brown v. Zavaras , 63 F.3d 967, 970 (10th Cir. 1995); Phillips v. Michigan Dept. of Corr. , 932 F.2d 969 (6th Cir. 1991), aff’g 731 F. Supp. 792 (W.D. Mich. 1990); White v. Farrier , 849 F.2d 322 (8th Cir. 1988); and Merriwether v. Faulkner , 821 F.2d 408, 411–413 (7th Cir. 1987).

30 O’Donnabhain , slip op. at 48, citing Flemming , T.C. Memo. 1980-583; Fay , 76 T.C. 408 (1981); Jacobs , 62 T.C. 813 (1974); and Fischer , 50 T.C. 164 (1968).

31 O’Donnabhain , slip op. at 53, citing Gammett v. Idaho State Bd. of Corr. , No. CV05-257-S-MHW (D. Idaho 7/27/07); Houston v. Trella , No. 2:04-CV-01393 (D.N.J. 9/25/06); Kosilek v. Maloney , 221 F. Supp. 2d 156, 158 (D. Mass. 2002); and Farmer v. Hawk-Sawyer , 69 F. Supp. 2d 120, 121 n.3 (D.D.C. 1999).

32 O’Donnabhain , slip op. at 57, citing Dickie , T.C. Memo. 1999-138 (naturopathic cancer treatments deductible); Crain , T.C. Memo. 1986-138 (holistic cancer treatments deductible but for failure of substantiation); Tso , T.C. Memo. 1980-399 (Navajo sings (healing ceremonies) deductible); Rev. Rul. 72-593, 1972-2 C.B. 180 (acupuncture deductible); and Rev. Rul. 55-261, 1955-1 C.B. 307 (services of Christian Science practitioners deductible).

33 O’Donnabhain , slip op. at 58, citing Rev. Rul. 73-201, 1973-1 C.B. 140 (cost of abortion legal under state law is deductible medical care under Sec. 213).

34 O’Donnabhain , slip op. at 59, citing Meriwether v. Faulkner , 821 F.2d 412 (7th Cir. 1981); Pinneke v. Preisser , 623 F.2d 548 (8th Cir. 1980); Sommers v. Iowa Civil Rights Comm’n , 337 N.W.2d 473 (Iowa 1983); Doe v. Minnesota Dep’t of Pub. Welfare , 257 N.W.2d 819 (Minn. 1977); and Davidson v. Aetna Life & Cas. Ins. Co. , 420 N.Y.S.2d 450 (N.Y. 1979).

35 See O’Donnabhain , slip op. at 62.

36 O’Donnabhain , slip op. at 71 (Halpern, J., concurring).

37 Davidson v. Aetna Life & Cas. Co ., 420 N.Y.S.2d 450 (N.Y. 1979).

Editor Notes

Lynn Comer Jones is an associate professor at the University of North Florida in Jacksonville, FL. For more information about this article, contact Prof. Jones at [email protected] .

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Deducting the Cost of Sex Reassignment Surgery: How O’Donnabhain v. Commissioner Can Help Us Make Sense of the Medical Expense Deduction

Luszti, Tamar E.

In February 2010, the Tax Court held that a taxpayer’s expenses incurred for hormone therapy and sex reassignment surgery were deductible as medical expenses under § 213 because they treated the disease of gender identity disorder. The court, however, was deeply divided in its determination of whether sex reassignment surgery qualifies as nondeductible cosmetic surgery under § 213(d)(9). In 1990, Congress amended § 213 to exclude cosmetic surgery from the definition of deductible medical care. Since then, the Tax Court and the I.R.S. have rarely addressed the meaning and extent of that exclusion. The judges’ divergent opinions in O’Donnabhain make it clear that a thorough examination of the statutory meaning of cosmetic surgery is timely. This Note considers what should qualify as cosmetic surgery within the context of the medical expense deduction. It argues that a medical procedure that improves physical appearance should be deductible under § 213 when it is physician-prescribed treatment for a specific disease, and consistent with generally accepted medical practice. This analysis is grounded in the statutory language of § 213, and is supported by broader principles that bear on the policy debate surrounding the medical expense deduction more generally.

• Taxation--Law and legislation
• Income tax deductions for medical expenses

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State health plans must cover gender-affirming surgery, US appeals court rules

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Ethics panel takes up complaint against republican senator who sent graphic video link.

An ethics panel Tuesday delayed action for yet another day on the question of whether Sen. Glenn Gruenhagen violated the norms of the state Senate by sending to his 66 colleagues a link to a video about gender-affirming surgery.

Sen. Erin Maye Quade, DFL-Apple Valley, filed the complaint against the Glencoe Republican in April 2023, but the Senate's ethics subcommittee didn't take it up until now. The four-person panel agreed to think about it and come back at 3 p.m. Wednesday to decide what, if anything, should be done.

The timing of the meeting was a concern for the two Republicans on the committee, who noted that the hearing occurred only after a complaint was recently filed against Sen. Nicole Mitchell, DFL-Woodbury, over her alleged attempted first-degree burglary of the Detroit Lakes home of her father's widow.

"The perception is the only reason we have this complaint in front of us now is because the other complaint was filed," Sen. Jeremy Miller, R-Winona, said. Sen. Andrew Mathews, R-Princeton, expressed similar concerns.

For more than two hours, the committee heard from and questioned Maye Quade and Gruenhagen before agreeing on a motion by Sen. Mary Kunesh, DFL-New Brighton, to think about it overnight.

Mathews initially moved for a finding of no probable cause for wrongdoing. But the motion failed on a tie with the two Republicans voting for it and Kunesh and Chair Bobby Joe Champion, DFL-Minneapolis, against it.

Maye Quade argued that by sending a link of gender-affirming surgery to all senators last year, Gruenhagen violated the Senate norms and should be sent to sensitivity training on LGBTQIA+ matters. She said Gruenhagen labeled the contents "extremely graphic and disturbing" and "sent it anyway."

She said the email was gratuitous and not related to pending legislation. "We can and should express our opinions and educate each other about topics," she said, but added that Gruenhagen's email "demonstrated a deep lack of understanding about LGBTQIA+ people."

Gruenhagen countered that he was providing information about a bill passed late last April. "We have an obligation and a responsibility to do the research," Gruenhagen said. He said the email linked to an academic, medical video created to train physicians on male to female gender reassignment surgery.

"You had to click twice to get to the videos. You could have hit erase," he said. "What's at stake is whether a member can share information, even if it's explicit, on a bill that's coming before the Senate to vote on."

The bill, which is now law , provided protections from legal repercussions and extradition orders for transgender people and their families traveling to Minnesota for treatment.

Rochelle Olson is a reporter on the politics and government team.

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