Tax Law

Gender Reassignment Surgery and Hormone Therapy: Section 213 Medical Expense Deduction Upheld

In a full Tax Court opinion issued on February 2, 2010, the Tax Court found that the petitioner Rhiannon G. O’Donnabhain was entitled to Section 213 medical expenses for the cost of gender reassignment surgery and hormone therapy. The Court did rule however that Ms. O’Donnabhain was not entitled to that part of the expenses related to *** augmentation as it determined these expenses were cosmetic in nature. See O'Donnabhain v. Commissioner, 134 T.C. No. 4 (Feb. 2, 2010). The year in issue was 2001.

Ms. O’Donnabhain (O’Donnabhain) “was born a genetic male with unambiguous male genitalia.” She was uncomfortable ever since childhood with her male gender role and began secretly dressing as a woman beginning at age ten. After earning her degree in civil engineering, she served in the Coast Guard. She later married and had three children. “Her discomfort with her gender persisted. She felt that she was a female trapped in a male body.” She continued to wear women’s clothing. In 1992 she separated from her spouse and after this, she found her feelings about being female intensify.

In 1996, she began seeing a licensed independent clinical social worker and in 1997, this social worker diagnosed O’Donnabhain as a “transsexual suffering from severe gender identity disorder.” Gender Identity Disorder (GID) is listed in the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV), a book published by the American Psychiatric Association. The book does contain a disclaimer entitled “cautionary statement” which includes the following: “[t]he purpose of DSM-IV is to provide clear descriptions of diagnostic categories…it…does not imply that the condition meets legal or other non-medical criteria for what constitutes mental disease…”
The World Professional Association for Transgender Health (WPATH), which was formerly known as the Harry Benjamin International Gender Dysphoria Association, Inc (Benjamin) publishes standards of care (Benjamin Standards). The Benjamin Standards prescribe a “triadic treatment sequence” for individuals who have been diagnosed with GID. This includes the following:

  1. Hormonal sex reassignment (administration of cross-gender hormones to change physical appearance);
  2. "Real-Life Experience" - a period of living full-time in society as a member of the opposite sex; and
  3. Sex reassignment surgery.

O’Donnabhain’s therapist, as well as Dr. Coleman, a licensed psychotherapist with a doctoral degree in clinical psychology, recommended her for gender reassignment surgery. She was examined by Dr. Toby Meltzer, a board-certified plastic and reconstructive surgeon and he approved her surgery. He also noted “examination of her breasts reveal [sic] approximately B cup breasts with a very nice shape.” The sex reassignment surgery took place in October 2001, and she claimed medical expenses totaling $21,741 on her 2001 Federal income tax return. The Internal Revenue Service disallowed the deduction.

At trial, both the government and O’Donnabhain relied heavily upon expert testimony. O’Donnabhain’s expert and both of the government experts were board-certified physicians and members of the American Psychiatric Association. The Court also considered the legislative history of the medical expense deduction, which was added to the Code in 1942. The Court noted that “given the reference to “mental defect” in the legislative history and the regulations, it has also long been settled that “disease” as used in section 213 can extend to mental disorders.” The Tax Court also referenced the 1990 Congressional addition to Section 213 which specifically excluded cosmetic surgery from the definition of deductible medical expenses. The government took the position in this case that O’Donnabhain’s expenses were for cosmetic surgery, while she took the position they were properly deductible medical care expenses.

The Tax Court determined that GID was a disease. It ruled that the government was prohibited from using an expert to establish the meaning of a legal term and also rejected the government’s argument that “disease” must have a “demonstrated organic origin.” The Court went on to define “treat” in its ordinary, everyday sense. Ms. O’Donnabhain submitted evidence that the Benjamin Standards had sufficient medical efficacy, but the Court found that “a complete consensus on the advisability or efficacy of a procedure is not necessary for a deduction under section 213.” A “reasonable belief” in the efficacy of the procedure is all that is required. The Court concluded that the hormone therapy and gender reassignment surgery “treated” the disease of GID.

The Court reached a different conclusion on the *** augmentation cost of the gender reassignment surgery. The government argued that Ms. O’Donnabhain “already had normal breasts before her surgery.” The Court found the augmentation surgery excluded from the medical expense deduction because it was cosmetic in nature and did not “meaningfully promote the proper functioning of her body within the meaning of I.R.C. Sec. 213.” It additionally found the surgery not medically necessary.

As might be expected, the Tax Court Judges were splintered in their opinions on this case. The written opinions cover 139 pages. Judge Gale wrote the majority opinion, which was joined by Judges Colvin, Cohen, Thornton, Marvel, Wherry, Paris, and Morrison. Judge Halpern concurred because he wished to address some arguments made by his Judge colleagues that were not actually even raised by the government. Judge Holmes also wrote a concurring opinion because he did not believe it was necessary for the majority to conclude that gender reassignment surgery was the “medically necessary” proper treatment for “severe” cases of GID. Judge Goeke agreed with this concurring opinion. Judge Goeke also wrote his own “concurring in the result only” concurring opinion. He specifically disagreed with the majority’s analysis of Section 213. Judge Holmes agreed with this concurring opinion. Judge Foley wrote to concur in part and dissent in part. He believed the majority did not follow the statute. Judges Wells, Vasquez, Kroupa, and Gustafson joined in this opinion. Judge Gustafson also concurred in part and dissented in part. Judge Gustafson agreed with the majority the *** augmentation surgery was not deductible, but he would also have disallowed the sex reassignment surgery as a deductible expense. Judges Wells, Foley, Vasquez, and Kroupa agreed with this opinion. users can read about this opinion in a TaxAnalysts® news story, Tax Court Finds Controversial Surgery Mostly Deductible. users can also access the enhanced version of O'Donnabhain v. Comm'r, 2010 U.S. Tax Ct. LEXIS 4 (T.C. Feb. 2, 2010).

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