For years now I have represented egg donors in reviewing their contracts with intended parents and often the donor asks me if her compensation is taxable. It appears we now have an answer to that question from the U.S. Tax Court, yes, the compensation is taxable income for the donor.
In a decision issued in January 2015, the U.S. Tax Court held that compensation for an egg donor’s pain and suffering under a consensual contract is not “damages” under the Internal Revenue Code (I.R.C.) section 104(a)(2) and so such compensation should be included in the donor’s gross income. Perez v. Commissioner of Internal Revenue, 144 T.C. 4 (2015).
In the Perez case, the egg donor entered into two donor contracts in 2009, each of which provided that she was receiving her compensation for her “time, effort, inconvenience, pain and suffering in donating her eggs.” Id. She received a 1099 for her compensation but did not include the compensation on her tax return. Her argument before the Tax Court was that the compensation was damages for pain and suffering and so should be excluded from her income under I.R.C. section 104(a)(2). Id.
The Tax Court disagreed with the donor’s argument. First they determined that the donor’s compensation was for “services rendered and not for the sale of property” since the compensation was based on how far the donor went in the egg retrieval process and not on the quantity or quality of eggs retrieved. Id. Next the Tax Court found that the pain and/or injuries the donor experienced were “within the scope of the medical procedures to which she contractually consented.” Id. Because the donor consented in advance to the medical procedure(s), the Tax Court found that her compensation was not damages but was essentially payment for services performed by the donor under the contract. Therefore, the compensation did not fall within the exclusion for damages due to pain and suffering and so it was taxable.
Every egg donor contract I have ever drafted or reviewed acknowledges that the egg donation process has risks and could involve pain, suffering, and even physical injury. It is the nature of the medical procedure(s) involved and every egg donor is advised of the risks. By signing the egg donor contract, the donor is consenting to the egg donation process and the risks involved. Based on the Tax Court’s opinion in Perez, this means the donor’s compensation should be included in the donor’s taxable income and it is not excludable as damages.
Bottom line: the donor’s compensation under a consensual egg donation contract is taxable income for the egg donor.
For more information on how Jenny L. Womack can assist you as an Egg Donor or Intended Parent through the Egg Donation Process please contact her directly, www.WomackAdoptions.com
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