IRS Acquiesces in Gender Identity Disorder Case

The IRS has announced its acquiescence in O'Donnabhain v. Commissioner, Dec. 58,122, 134 TC No. 4, where the Tax Court found that expenses for gender identity disorder surgery were deductible under Code Sec. 213 (AOD-2011-03, 2011-47 IRB).

The taxpayer was diagnosed with gender identity disorder and underwent sex reassignment surgery. On her return, the taxpayer claimed a medical expense deduction for the surgery and related expenses. The IRS disallowed the deduction, based on CCA 200603025. According to the IRS, the surgery did not treat a recognized disease or promote the proper function of the body.

O'Donnabhain was a case of first impression before the Tax Court. The court held that the taxpayer's gender identity disorder (GID) was a disease within the meaning of Code Sec. 213(d)(1)(A) and (9)(B) and, therefore, the cost of her hormone therapy and sex-reassignment surgery were deductible medical expenses under Code Sec. 213(a). However, the cost of the taxpayer's breast augmentation surgery was not deductible because it met the definition of cosmetic surgery under Code Sec. 213(d)(9)(B).

The Tax Court held that the taxpayer's GID was a disease for purposes of Code Sec. 213 in view of its widely recognized status in diagnostic and psychiatric reference texts as a legitimate diagnosis, the seriousness of the condition, the severity of the taxpayer's impairment as found by the mental health professionals who examined her, and the consensus in the U.S. Courts of Appeal that GID constitutes a serious medical need for purposes of the Eighth Amendment.

The government's argument that GID is a mental disorder but not a disease, for purposes of Code Sec. 213 because it does not have a demonstrated organic or physiological origin, was rejected. The court stated that the government's use of its expert's testimony to establish the meaning of "disease," a statutory term, was improper.

The IRS will no longer take the position reflected in CCA 200603025. The IRS explained it will follow the Tax Court's decision in O'Donnabhain.

"The IRS has now made clear that its previous position, as embodied in the 2006 Chief Counsel Advice, was wrong," Gay & Lesbian Advocates & Defenders Senior Staff Attorney Karen Loewy, who was the lead attorney on the O'Donnabhain case, said. "Going forward, the IRS will treat gender identity disorder as a legitimate medical condition, and expenses incurred for its treatment - including those related to hormone therapy and sex reassignment surgeries - will be considered deductible like those for every other medical condition. "

Reference: PTE §7,275