New Ruling: IRS Can Tax Payments To Egg Donors As Income

by Tony Nitti – Forbes Contributor – January 22, 2015

Among the many injustices life dishes out on a daily basis is the fact that many women who are actively trying to become pregnant cannot do so, while every teenager with more hormones and free time than common sense seemingly can’t keep from getting pregnant.

It’s a struggle I witnessed personally when my older sister tried unsuccessfully for years to conceive a child, her painful emotional battle reaching its nadir when an apathetic doctor explained to her that, “some women just aren’t meant to have children.”

Fourteen years and three beautiful girls later, my sister got the last laugh. But the process was far from easy, which is the reality for many women. And this is precisely why the fertility industry has become a billion dollar business.

There are no shortage of available alternatives for women struggling to get pregnant; unfortunately, they are typically intrusive and expensive. One option, which is the thrust of our discussion here, is “egg donation,” whereby a female donor is supplied with hormones that increase her egg production. The eggs are then removed, fertilized in a laboratory, and ultimately implanted in the intended recipient.

The term “egg donation” is a bit of a misnomer, however, because rarely is the egg “donated” in the traditional, altruistic sense. Rather, the donor is typically compensated, and compensated well. This, as you might imagine, has led to a rather big tax conundrum: do the amounts received by the donor in exchange for her eggs constitute taxable income?

The issue has been a huge topic of conversation on egg donor message boards (yes, there is such a thing) and in the fertility industry at large. And for good reason: because until today, there was no answer. Hours ago, however, that all changed, when the Tax Court concluded that amounts received by a donor represented taxable compensation income.

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