Wednesday, February 03, 2010

Tax Court reverses IRS on Sex reassignment deductability

Rhiannon O'Donnabhain - Image courtesy of GLAD
In 2001 Rhiannon O'Donnabhain, then aged 50, underwent sex reassignment surgery to transition from male to female. She deducted the allowable portion of the surgery costs on her federal taxes.

In 2003 the IRS disallowed the deduction, claiming the surgery, performed after five years of therapy, as "cosmetic," and therefor not a deductible medical expense.

Rather than quietly allow the IRS position to prevail,she decided to appeal the decision, and the initial appeal granted her the deduction for the surgery expense. The local IRS office sought a decision from Washington, and a Tax Letter was issued on Oct 14,2005 denying the applicability of the deduction.

The case went before the Tax Court in 2007. Oral arguments were heard in November of that year. Both sides finished filings in February of 2008. The Tax Court issued its final opinion on Feb 2,2010.

The decision of the court is that the surgery and hormone treatments are deductible expenses, but the breast augmentation surgery was primarily "cosmetic" in nature, and therefore does not pass the statutory test for the qualification as a deductible expense.

(One of the side-notes that, to me, made this more of a political case than a straight-forward finances case, was the choice of one of the expert witnesses by the IRS: forensic psychiatrist Dr. Park Dietz, who testified that Gender Identity Disorder is not a disease. Dr Dietz has a small problem in credibility, when one reflects that he was the same doctor who testified that Andrea Yates had apparently seen an episode of the TV series "Law and Order" that depicted a woman who had an insanity defense after drowning her children. The problem, however, was that no such episode of Law and Order had ever aired. Indeed, Deitz also stated his opinion during the trial that a disorder should not be called a "disease" unless it has a clear and unambiguous organic or physiological basis)

Legal assistance to O'Donnabhain was rendered through the Gay and Lesbian Advocates & defenders.

I wrote about this in 2007, but I don't have a subscription to the proper legal services to be able to inquire about the progress of cases, and my periodic curiosity about the progress of the case has been, until now, unsatisfied.

Initial coverage from the New York Times,

Initial tax court petition

Tax court decision

This blog's prior posts are here (07/2007) and here (10/2007)