Tax Victory For Transgender People Finalized
Early last year, a federal tax court issued a ruling which is a major victory for transgender people. The court ruled that people who undergo sex reassignment surgery may, with certain limitations, claim the cost of the surgery as a tax deductible medical expense on their federal tax return. February 7, 2011 was the deadline for the government to appeal the decision, and it did not do so. So the decision is now final and binding on the federal government. It appears now that others can claim sex reassignment surgery, and hormone therapy, as a deductible medical expense on their federal tax return assuming they have the documents to support their need for them.
The court said that, if a patient is experiencing gender identity disorder (GID), and there is a clear medical record that the surgery is needed to treat that condition, then the costs of the surgery may be deducted as a medical expense on federal income tax return. Anyone who is considering having the surgery, and claiming a tax deduction for it on their federal income tax return, should first consult with their medical provider and with their tax advisor. This decision should not be made lightly.
The court said Gender Identity Disorder (GID) is an actual disease, as defined by the Internal Revenue Code. It also said hormone therapy, and sex reassignment surgery, are valid forms of treatment for that disease, and the costs of such care are deductible under the Internal Revenue Code.
This case began when a transgender person in Massachusetts, Rhiannon O'Donnabhain, underwent sex reassignment surgery in 2001. She then claimed the cost of the procedure as a deductible medical expense on her federal tax return. But the Internal Revenue Service refused to allow the deduction. Ms. O'Donnabhain then went to court to appeal their decision.
The tax court said O'Donnabhain could claim the cost of hormone therapy and of sex reassignment surgery. It did refuse to allow a deduction for the cost of breast enhancement surgery. The court said her breast augmentation surgery was directed at improving her appearance and she had not shown that the surgery either meaningfully promoted the proper function of the body, or a treated a disease, within the meaning of the Internal Revenue Code.
Last year, a contact at the California Franchise Tax Board said California law generally conforms to federal tax law and so, if the tax court decision is finalized, transgender people in California might well be permitted to claim sex reassignment surgery, and hormone therapy, costs as deductible expenses on both their federal and state income tax returns. We do not yet have a final decision from the Franchise Tax Board on the issue. However, we are currently in discussion with them. We will let you know the final outcome on this issue.
People may also be able to submit amended tax returns for prior years. It is possible to submit federal amended tax returns for the past 3 years, and amended California returns for the past 4 years. Thus, if people had their surgery prior to 2010, it might still be possible to claim the cost of the surgery as a medically deductible expense. However, you should consult a tax attorney or other qualified tax expert before trying this.
Similarly, one should not assume that any claim for sex reassignment surgery will be approved by the IRS. To succeed with such a claim, the person must have clear documentation that he or she suffers from Gender Identity Disorder and that the surgery was necessary to the treatment of the disorder. Medical verification of these facts would be necessary.
People may see a copy of the tax court decision by directing their browser to: http://www.calcomui.org/nwsflsh021511.html and then clicking on the link at the bottom of the web based version of this NewsFlash.
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