This paper examines the complex intersection between Title 26 of the Internal Revenue Code and the gestational surrogacy process. Specifically, it analyzes the medical expense deduction under §213 and evaluates the ongoing reluctance of the Internal Revenue Service (IRS) and federal courts to permit deductions for surrogacy expenses incurred by intended parents. Focusing on the landmark case Morrissey v. United States, the paper illustrates how current tax laws fail to reflect modern societal structures, ultimately disrupting the tax principle of horizontal equity by denying same-sex and infertile couples the same tax relief granted to biologically reproductive heterosexual couples.
To address the legislative impasse and conservative judicial interpretations, the paper proposes two distinct legal workarounds for tax planners and intended parents to successfully deduct surrogacy-related costs:
• The Dependent Framework (§152): Utilizing the legal evolution of fetal personhood to allocate third-trimester medical, diagnostic, and delivery expenses directly to the unborn child (a qualifying dependent) rather than the surrogate.
• The Business Expense Framework (§162): Recharacterizing surrogacy costs as ordinary and necessary business expenses by embedding the lived experience of surrogacy into the launch of a specialized, profit-motivated fertility or surrogacy law practice.
The paper concludes that while these strategies offer viable avenues for affluent taxpayers to navigate current systemic barriers, true horizontal tax equality will not be achieved until Congress formally amends the Code to explicitly include assisted reproductive technologies under allowable medical deductions.
Table of Contents
(i) Introduction
(ii) The Coles Notes of Surrogacy
(iii) The Medical Expense Deduction
(iv) Morrissey v. United States
(v) Fall Out from Morrissey
(vi) Challenging the Commentary on the 213 Deduction
(vii) Use of the “Dependent” Definition in 213(a)
(viii) The Business Expense Deduction
(ix) Conclusion
Research Objective and Core Topics
This paper explores the interaction between Title 26 of the Internal Revenue Code and the surrogacy process, specifically analyzing the obstacles intended parents face when attempting to deduct gestational surrogacy and in-vitro fertilization expenses under medical expense and business expense provisions.
- Interaction between tax law and gestational surrogacy processes
- Application and limitations of the § 213 medical expense deduction
- Judicial interpretation and implications of the Morrissey v. United States decision
- Horizontal tax equity disparities affecting homosexual and heterosexual couples
- Potential workarounds including dependent classification under § 152 and business expense deductions under § 162
Excerpt from the Book
The Medical Expense Deduction
The general rule in § 262(a) of the Code is that “personal, living or family expenses” are not deductible from gross income. This means that unless there is another Code provision which provides an exception to § 262(a), the expenses of gestational surrogacy will be considered personal, living or family expenses. Courts have found that having a child is “inherently personal”, so it is unsurprising that the costs associated with having a child, such as gestational surrogacy, would fall under §262(a) and be prima facie non-deductible. The 213 deduction, however, is an exception to the general rule in §262(a). It provides a façade of hope that expenses for gestational surrogacy could be deductible. §213 provides a deduction for medical care as follows:
213(a) Allowance of deduction
There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income.
The term “medical care” as used in the 213 deduction means “the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure of the body”. The term “dependent” means (a) a qualifying child or (b) a qualifying relative. A qualifying child generally means a child who is related to the taxpayer and has the same place of residence.
Summary of Chapters
(i) Introduction: Introduces the interaction between Title 26 of the Internal Revenue Code and surrogacy, outlining how statutory provisions fail to keep pace with modern societal changes and tax equity.
(ii) The Coles Notes of Surrogacy: Provides an overview of third-party reproduction, terminology, contractual arrangements, and the rapidly growing commercial surrogacy market.
(iii) The Medical Expense Deduction: Examines § 213 of the Code, highlighting the stringent statutory requirements and judicial reluctance to classify infertility and surrogacy expenses as medical care.
(iv) Morrissey v. United States: Analyzes the landmark case where a gay married man sought a § 213 deduction for surrogacy expenses, detailing the court's rejection and adherence to narrow statutory definitions.
(v) Fall Out from Morrissey: Discusses the academic criticism surrounding the Morrissey decision and how it reinforces horizontal tax inequities against LGBT families.
(vi) Challenging the Commentary on the 213 Deduction: Evaluates the practical thresholds of the § 213 deduction and the political hurdles involved in attempting legislative reform through Congress.
(vii) Use of the “Dependent” Definition in 213(a): Explores the potential workaround of classifying pre-birth and third-trimester expenses under dependent care definitions influenced by evolving fetal personhood laws.
(viii) The Business Expense Deduction: Investigates the viability of deducting surrogacy costs as ordinary and necessary business expenses under § 162 by establishing a related fertility law practice.
(ix) Conclusion: Summarizes the proposed workarounds and emphasizes the necessity for legislative action to achieve true horizontal tax equity for surrogacy-related expenses.
Keywords
Internal Revenue Code, Surrogacy, Gestational Surrogacy, Medical Expense Deduction, Section 213, Horizontal Tax Equity, In-Vitro Fertilization, Morrissey v. United States, Business Expense Deduction, Dependent Care, Tax Law Reform
Frequently Asked Questions
What is the core subject of this paper?
The paper investigates how the Internal Revenue Code interacts with surrogacy processes, focusing specifically on the financial and legal barriers intended parents face when attempting to deduct gestational surrogacy and IVF expenses.
What are the central thematic fields explored in the text?
The central themes include federal tax law, medical expense deductions under Section 213, commercial surrogacy contracts, horizontal tax equity, LGBT parental rights, and alternative workarounds such as business expense deductions.
What is the primary research question or objective?
The objective is to examine why courts and the Internal Service deny deductions for surrogacy expenses and to propose viable legal workarounds—such as dependent classifications and business expense deductions—to navigate these statutory limitations.
What scientific and legal methods are utilized in the paper?
The paper employs statutory interpretation, case law analysis of federal tax rulings and court decisions (such as *Morrissey v. United States*), and critical legal studies examining tax policy and socioeconomic equity.
What topics are analyzed in the main body of the work?
The main body covers the mechanics of surrogacy, the strict criteria of Section 213, judicial precedents denying deductions, the systemic lack of horizontal tax equity, and two main workarounds involving Section 152 dependent definitions and Section 162 business expenses.
Which keywords characterize the academic focus of this publication?
Key topics include Internal Revenue Code, Section 213, gestational surrogacy, horizontal tax equity, in-vitro fertilization, dependent classification, and business expense deductions.
How does the Internal Revenue Code treat personal expenses versus medical expenses regarding surrogacy?
Under Section 262(a), personal, living, or family expenses are strictly non-deductible. While Section 213 provides an exception for medical care, courts interpret "medical care" narrowly, often excluding gestational surrogacy because the medical procedures affect the surrogate rather than the intended parents directly.
What was the legal significance of the Morrissey v. United States case?
Morrissey v. United States was a landmark case where a gay married man sought a Section 213 tax deduction for IVF and gestational surrogacy expenses. The 11th Circuit denied the appeal, establishing that surrogacy expenses do not directly affect the taxpayer's body and reinforcing horizontal tax inequities against homosexual parents.
How can the definition of a dependent under Section 152 potentially assist intended parents?
By leveraging jurisprudence suggesting that an unborn child can be considered a dependent under Section 152, intended parents might argue that third-trimester and birth-related medical expenses incurred prior to birth qualify as medical care for the child, bypassing restrictions associated with surrogate-incurred costs.
In what ways can self-employed professionals utilize Section 162 for surrogacy expenses?
Self-employed professionals, such as lawyers establishing a fertility law practice, can potentially claim surrogacy and third-party reproduction costs as ordinary and necessary business expenses under Section 162, provided they satisfy the nine non-exhaustive profit-motive criteria outlined in Treasury regulations.
- Arbeit zitieren
- Ryan Solcz (Autor:in), 2026, The Taxation of Surrogacy Expenses, München, GRIN Verlag, https://www.grin.com/document/1775679
