Tax Court Holds Payments to Egg Donors Are Taxable Income

Many women who are actively trying to become pregnant are unable to do so; fortunately, there is no shortage of available alternatives for these women.  Often, however, these are typically intrusive and expensive.  One option is “egg donation,” whereby a female donor is supplied with hormones that increase her egg production.  The eggs are subsequently removed, fertilized in a laboratory, and ultimately implanted in the intended recipient. 

The term “donation” is somewhat of a misnomer, as the donor is typically compensated.  This has led to a tax conundrum: do the amounts received by the donor in exchange for her eggs constitute taxable income?  The Tax Court recently held in Perez v. Commissioner, 144 T.C. 4, (2015) that amounts received by a donor represented taxable compensation income.

Nichelle Perez, contracted with several donor companies to sell her eggs to women who struggled to conceive on their own.  Perez was compensated, not for selling her eggs, but for her physical pain and suffering during the egg donation process.  Perez argued that the $20,000 she earned from the contracts was not taxable income.  The Tax Court concluded that because the pain and injuries she would incur were anticipated and consensual, was within the scope of the medical procedures to which she consented contractually.  The payments were to compensate her for services rendered, thus, the amounts paid to her represented taxable income. 

See Tony Nitti, New Ruling: IRS Can Tax Payments To Egg Donors As Income, Forbes, Jan. 22, 2015.