SEX CHANGE NOW DEDUCTIBLE

Sex change costs, except those for breast augmentation, held deductible as medical expenses

O'Donnabhain (2010), 134 TC No. 4

The Tax Court has held that an individual could deduct as a medical care expense under Code Sec. 213 amounts paid for hormone therapy and sex reassignment surgery that were incurred in connection with a condition known as gender identity disorder, which the Tax Court found to be a disease. However, it found that breast augmentation surgery that the individual also had in connection with the disorder was cosmetic surgery and amounts paid for it were not deductible under Code Sec. 213(d)(9) .

Background. Code Sec. 213(a) permits a deduction for expenses paid during the tax year for medical care of the taxpayer, spouse or dependent; an expense is for medical care if it is paid for the diagnosis, cure, mitigation, treatment or prevention of disease. Amounts paid for “cosmetic surgery” or other similar procedures can't be taken into account as a medical expense deduction, unless the surgery or procedure is necessary to ameliorate a deformity arising from (or directly related to) a (1) congenital abnormality, (2) personal injury resulting from an accident or trauma, or (3) disfiguring disease. ( Code Sec. 213(d)(9)(A) ) “Cosmetic surgery” is any procedure that is directed at improving the patient's appearance and doesn't meaningfully promote the proper function of the body or prevent or treat illness or disease. ( Code Sec. 213(d)(9)(B) )

Facts. Rhiannon G. O'Donnabhain (the Tax Court petitioner) was born a genetic male with unambiguous male genitalia. However, she was uncomfortable in the male gender role from childhood and first wore women's clothing secretly around age 10. (Reflecting O'Donnabhain's preference, the Court used the feminine pronoun to refer to her throughout the opinion). Her discomfort regarding her gender intensified in adolescence, and she continued to dress in women's clothing secretly.

As an adult, O'Donnabhain earned a degree in civil engineering, served on active duty with the U.S. Coast Guard, found employment at an engineering firm, married, and fathered three children. However, her discomfort with her gender persisted. She felt that she was a female trapped in a male body, and she continued to secretly wear women's clothing.

O'Donnabhain's marriage ended after more than 20 years. After separating from her spouse in '92, her feelings that she wanted to be female intensified and grew more persistent. Eventually, she contacted Diane Ellaborn (Ms. Ellaborn), a licensed independent clinical social worker (LICSW) and psychotherapist, and commenced psychotherapy sessions in August '96. In early '97, after approximately 20 weekly individual therapy sessions, Ms. Ellaborn's diagnosis was that O'Donnabhain was a transsexual suffering from severe gender identity disorder (GID), a condition listed in the Diagnostic and Statistical Manual of Mental Disorders (4th ed. 2000 text revision) (DSM-IVTR), published by the American Psychiatric Association.

Medical professionals who treat gender identity disorder prescribe for its treatment in genetic males, depending on the severity of the condition, (i) administration of feminizing hormones; (ii) living as a female in public; and (iii) after at least a year of living as a female, surgical modification of the genitals and, in some circumstances, breasts to resemble those of a female (sex reassignment surgery).

Pursuant to this treatment regimen, O'Donnabhain was prescribed feminizing hormones in '97 and continued to take them through 2001. In 2000, after plastic surgery to feminize facial features, she began presenting full time in public as a female. In 2001 she underwent sex reassignment surgery, including breast augmentation surgery.

O'Donnabhain claimed a medical expense deduction for the cost of the surgeries, transportation and other related expenses, and feminizing hormones, for tax year 2001. IRS disallowed the deduction.

Court's holdings. The Tax Court held that O'Donnabhain's gender identity disorder is a “disease” within the meaning of Code Sec. 213(d)(1)(A) and Code Sec. 213(d)(9)(B) . It further held that her hormone therapy and sex reassignment surgery were “for the...treatment...of” and “[treated]” disease within the meaning of Code Sec. 213(d)(1)(A) and Code Sec. 213(d)(9)(B) , respectively, and consequently the procedures were not “cosmetic surgery” excluded from the definition of “medical care” by Code Sec. 213(d)(9)(B) . Rather, the amounts paid for the procedures were expenses for “medical care” that were deductible under Code Sec. 213(a) .

However, the Tax Court held that O'Donnabhain's breast augmentation surgery was directed at improving her appearance and that she had not shown that the surgery either meaningfully promoted the proper function of the body or treated a disease within the meaning of Code Sec. 213(d)(9)(B) . Accordingly, the breast augmentation surgery was “cosmetic surgery” within the meaning of Code Sec. 213(d)(9)(B) that was excluded from the definition of deductible “medical care” by Code Sec. 213(d)(9)(A) .