On January 22, 2015, the United States Tax Court, in the case of Perez v. Commissioner of Internal Revenue, held that compensation paid to an egg donor is taxable income.
Under Section 104(a)(2) of the tax code, compensation received as “damages” for pain and suffering, are not included in taxable income. The clearest example of this is when someone in a car accident who is injured sues the other driver who caused the accident. Any settlement proceeds or verdict proceeds that the injured party receives are not deemed taxable income. Until now, egg donors might conclude that their compensation fell under this category and was not taxable.
The major difference from the car accident case and the egg donation case is that the egg donor is voluntarily submitting to the pain and suffering that she undergoes as a consequence of engaging in egg donation. The Tax Court stated, “Perez very clearly has a legally recognized interest against bodily invasion. But we must hold that when she forgoes that interest--and consents to such intimate invasion for payment--any amount she receives must be included in her taxable income. . . . But the injury here, as painful as it was to Perez, was exactly within the scope of the medical procedures to which she contractually consented. Twice. Her physical pain was a byproduct of performing a service contract, and we find that the payments were made not to compensate her for some unwanted invasion against her bodily integrity but to compensate her for services rendered.”
This is an unfortunate ruling because the egg donor is doing something so special and wonderful to help people create families - to have very wanted and loved children. Further, to undergo such invasive medical procedures in an effort to help people is really invaluable and the compensation does not measure up to the gift given. It is indeed a donation and the compensation is really just a token of acknowledgement.
The Tax Court’s reasoning goes like this: “We see no limit on the mischief that ruling in Perez’s favor might cause: A professional boxer could argue that some part of the payments he received for his latest fight is excludable because they are payments for his bruises, cuts, and nosebleeds. A hockey player could argue that a portion of his million-dollar salary is allocable to the chipped teeth he invariably suffers during his career. And the same would go for the brain injuries suffered by football players and the less-noticed bodily damage daily endured by working men and women on farms and ranches, in mines, or on fishing boats. We don’t doubt that some portion of the compensation paid all these people reflects the risk that they will feel pain and suffering, but it’s a risk of pain and suffering that they agree to before they begin their work. And that makes it taxable compensation and not excludable damages.”
But to compare a woman who is donating her eggs, her human gametes, to a professional boxer, a hockey player, and a football player is surely misguided and wrong.
The same, I believe, goes for surrogate compensation. It is difficult for many intended parents to afford surrogacy, but $25,000 or $35,000 should not be deemed taxable income for what the surrogate is doing. To put your body through what a surrogate does and take on those risks for $25,000.00, it is in essence simply a gratuity.
Lawyers, ethicists, and doctors should work toward legislative changes that will overturn this tax decision.
