Tax Court Allows Medical Deduction for Sex Change Operation

In a case of first impression, the Tax Court has held that a taxpayer can take a medical expense deduction for the costs of a sex change operation ( O’Donnabhain, 134 TC no. 4). However, the taxpayer’s expenses for breast augmentation surgery were disallowed by the court as cosmetic surgery.


The taxpayer was born male, but diagnosed with gender identity disorder. As a result of this condition, the taxpayer suffered persistent psychological discomfort with her gender. As part of a three-part treatment regimen, the taxpayer took feminizing hormones from 1997 through 2001, began presenting herself as a female in public starting in 2000, and underwent gender reassignment surgery (including breast augmentation) in 2001. For tax year 2001, the taxpayer claimed a $21,741 deduction for the costs of the feminizing hormones, surgeries, and transportation and other related expenses. The IRS disallowed the deduction.


IRC § 213 allows taxpayers to deduct the costs of medical care paid during a tax year to the extent they exceed 7.5% of the taxpayer’s adjusted gross income (and if they are not reimbursed by insurance). The Tax Court reviewed the definition of medical care, which under section 213(d)(1)(A) has two prongs: (1) amounts paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease” and (2) amounts paid “for the purpose of affecting any structure or function of the body.” The court noted that it has long been settled law that “disease” for these purposes includes mental disorders. The court also noted that, under section 213(d)(9), cosmetic surgery is specifically excluded from the definition of medical care.


In disallowing the deduction, the IRS argued that the taxpayer’s hormone therapy, sex reassignment surgery and breast augmentation surgery all qualified as cosmetic surgery. The IRS maintained that these procedures were directed at improving the taxpayer’s appearance and not treating an illness or disease. Although the IRS conceded that gender identity disorder is a mental disorder, it argued that it is not a disease because it does not “arise from an organic pathology within the human body.” The IRS further argued that there was no evidence that procedures the taxpayer underwent were effective in treating gender identity disorder.


The Tax Court reviewed medical literature and prior case law to come to the conclusion that gender identify disorder is a disease for purposes of IRC § 213. The court rejected the IRS’ position that to qualify as a “disease” under section 213 a condition must have a demonstrated organic origin. The court also concluded that the taxpayer suffered significant impairment from the disease. Finally, the court concluded that the taxpayer’s three-part treatment regimen, culminating in sex reassignment surgery, was generally accepted by the medical community (and by the experts who testified in the case) as effective treatment for gender identity disorder.


The court held that as treatment for a disease, the hormone therapy and sex reassignment surgery were not cosmetic surgery and allowed the taxpayer’s deductions for those costs. However, the court disallowed the deduction for the taxpayer’s breast augmentation surgery because it was a cosmetic surgery directed at improving her appearance and did not promote proper function of the body or treat disease.


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