Are Egg Donors like Miners and Boxers?

By Dov Fox

The U.S. tax court has just issued its long-awaited decision in Perez v. Commissioner, 144 T.C. No. 4 (Jan. 22, 2015). (Hat tip to Richard Carpenter, who represented Perez.) The case decided whether the $20,000 a woman called Nichelle Perez received to provide her eggs is, for IRS purposes, taxable income, or, instead, recovery for physical damages, which would make that payment tax-free. An introduction to this case is available in my earlier Bill of Health post: Can you be taxed for selling your eggs?, and at greater length in last year’s Taxing Eggs: A Mini Symposium, over at the Faculty Lounge. And the opinion cites thoughtful articles by Professors Kim Krawiec, Bridget Crawford, and Lisa Milot.)

The legal question presented was whether the payments Perez received are tax-exempt “damages” under Section 104 of the Internal Revenue Code. The court held they did not, and thus could be taxed. Judge Holmes observed that the contracts had characterized those payments as consideration for pain and suffering rather than the eggs themselves. He explained that “the injury here, as painful as it was to Perez, was exactly within the scope of the medical procedures to which she contractually consented.” Accordingly, “the payments were made not to compensate her for some unwanted invasion against her bodily integrity but to compensate her for services rendered.” Despite the pain and danger Perez incurred through the process of egg retrieval, Judge Holmes affirmed that “the money she received was not ‘damages'” because “she voluntarily signed a contract to be paid to endure” those risks. I’d be interested to learn whether readers find persuasive the Court’s provocative analogies to egg “donation”:

A professional boxer could argue that some part of the payments he received for his latest fight is excludable because they are payments for his bruises, cuts, and nosebleeds. A hockey player could argue that a portion of his million-dollar salary is allocable to the chipped teeth he invariably suffers during his career. And the same would go for the brain injuries suffered by football players and the less-noticed bodily damage daily endured by working men and women on farms and ranches, in mines, or on fishing boats. We don’t doubt that some portion of the compensation paid all these people reflects the risk that they will feel pain and suffering, but it’s a risk of pain and suffering that they agree to before they begin their work. And that makes it taxable compensation and not excludable damages.

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About Dov Fox

Dov Fox is Professor of Law and founding Faculty Director of the Center for Health Law Policy and Bioethics at the University of San Diego School of Law. He has published dozens of articles in leading journals of law and medical ethics, most recently “Reproductive Negligence” in 117 Columbia Law Review 149 (2017). His current book project, Birth Rights and Wrongs, is under contract with Oxford University Press. His work has been featured in CNN, ABC, NPR, BBC, Reuter’s, Bloomberg, the Boston Globe, and the Washington Post. Fox is a regular columnist for The Huffington Post and contributor to the Bill of Health blog. He also serves on the advisory boards of the American Constitution Society and Appellate Defenders, the non-profit law firm that administers all appointed counsel for indigent defendants in California's Fourth Appellate District. Prior to teaching, Fox served as a law clerk to the Honorable Stephen Reinhardt of the U.S. Court of Appeals for the Ninth Circuit. He has also worked at the law firm of Wachtell, Lipton, Rosen & Katz; the consulting firm of McKinsey & Company; and the Civil Appellate Staff at the U.S. Department of Justice. Fox was awarded a Rhodes Scholarship to attend Oxford University, where he earned his DPhil and then received a Soros Fellowship for New Americans to attend Yale Law School, where he served as projects editor for the Yale Law Journal and all three years was awarded the prize for best student paper in law and the sciences.