There are various medical expenses that are allowed for tax deductions. These include medical expenses that are not covered by insurance and that are deemed to be medical and necessary. A guide to these medical expenses is provided in a schedule on the IRS website. If a taxpayer incurs any of these medical costs, they can make a tax deduction against such an expense. As for surgeries, any operation that is considered cosmetic is not tax deductible. The determination of whether a surgery is cosmetic or medical is based on whether such a medical operation was necessary for medical reasons or not. One of the surgeries that was previously deemed to automatically fall under the cosmetic category was having a sex change. However, a recent court ruling may have reversed such a perception -even by the IRS – and thereby, making some sex change surgeries tax deductible, depending on the circumstances.
Recent Case on Sex Change
In 2002, a taxpayer filed a return claiming a tax deduction of $5,679 against the cost of a surgical operation to change sex from that of a man to a woman. However, the IRS turned down this deduction and billed the taxpayer with the amount. The taxpayer chose to challenge the decision in a tax court. In the hearing, it was determined that the taxpayer had a psychological condition referred to as Gender Identity Disorder. The disorder was confirmed by three expert witnesses as being a serious medical condition that had impaired the taxpayer significantly. The judge ruled that indeed, the expense was deductible and that the IRS was in error to have levied the amount back to the taxpayer. In his ruling, the judge observed that Gender Identity Disorder was widely accepted as a medical condition and that the Court of Appeal considered the disorder as an authentic medical disorder. In that case, the judge allowed both the therapy and surgery costs to be tax deductible. He however, disallowed the deduction of costs of a breast enlargement operation that had been done on the taxpayer. He found the surgery not fundamental to treating the patient’s medical condition and deemed it cosmetic.
IRS Provides a Guideline for Sex Change Expense
After this ruling by the tax court, the IRS choose not to object it in a higher court but instead, provided rules in their website of the admissibility of certain medical costs relating to gender change. In the Notice of Acquiescence reference AOD201103, the IRS explained that the tax court had found the taxpayers sex change costs as being tax deductible because her condition was proved to be a disease. The IRS provided the ruling on the case and the reasons that the judge gave to allow for the tax deduction. In this case, the IRS will now follow the guideline of the ruling when qualifying costs relating to sex change for tax deductions.
