Courtesy of Infinisource.net

Wednesday, February 03, 2010

 An individual recently wanted to have more children and hired two women (who were unrelated to him) to carry one baby each via in vitro fertilization (IVF). He thought that these IVF expenses should qualify as medical care under Section 213(d) of the Tax Code.

 Unfortunately for him, a tax court disagreed with him. So did the Court of Appeals.

 In the case of Magdalin v. IRS Commissioner, the rationale of both courts was straightforward. The individual already had two children by a former spouse, both by natural means. There was nothing wrong with him physically. None of the women involved – those who gave the eggs and those who carried the babies – was a legal spouse or tax dependent.

 Section 213(d) provides the critical definition of what constitutes medical care, both for the federal tax deduction and reimbursement under an employer-sponsored Health FSA, Health Reimbursement Arrangement or Health Savings Account. These expenses did not meet the standards of that definition. They were not incurred primarily for the prevention or alleviation of a physical or mental defect or illness. They did not affect a structure or function of the body. The individual had no medical condition or defect (such as infertility) that required treatment or mitigation through IVF procedures. To sum up, this was not medical care for the father.

 The tax court distinguished this situation from other IRS guidance allowing egg donor expenses. In those situations, the individual or individual’s spouse had infertility issues and the donated egg was implanted into the wife’s body.

 A further glance at Publication 502 might also lead to the wrong conclusion that all fertility enhancement procedures are allowable. The tax court made this cogent observation:  "IRS publications are not authoritative sources of Federal tax law." This is an important reminder to plan administrators:  do not refer employees and participants to Publication 502 for determining whether an expense is for qualified medical care.