A dispute between the IRS and a donor of eggs for fertility treatment was a matter that should properly be regarded as being similar to a personal injury lawsuit settlement, according to Nichelle Perez of California who received $20,000 for her eggs. She contends it was a tax exempt payment for pain and suffering.
However the IRS disagree, regarding the payment as income and taxable.
A U.S. Tax Court judge will determine the outcome in what is seen as a precedent-setting case that could provide certainty for people who donate eggs, sperm and blood plasma.
“Settling this would settle the law for an awful lot of people,” said Lisa Milot, an associate law professor at the University of Georgia who studies the regulation of the human body. “Right now, the status is that people’s understandings and practices are just all over the place.”
Nationally, women made 16,858 attempts to conceive using donated eggs in 2012, according to the Society for Assisted Reproductive Technologies. That’s a 5.5 percent increase from 2011.
In 2009, Perez twice donated eggs through the Donor Source International LLC, each time receiving $10,000 after a months-long process that included injections and medical exams.
She didn’t report the income on her tax return and received a notice from the IRS. The tax agency acted after receiving an informational return from The Donor Source saying that Perez had been paid.
Perez then challenged the IRS, contending that the payment was more like a settlement from a personal-injury lawsuit than business earnings.
“This is in no way considered self-employment since I did not sell a product or service,” she wrote in a 2012 court filing. “I feel like I am being penalized for doing something good for another person.”
The IRS said Perez owed $4,998 in taxes, plus interest. In court filings, the agency noted Perez’s voluntary consent and pointed to her agreement with The Donor Source, which described the payment as a “fee.”
Milot, the law professor, said Perez’s argument about damages probably won’t succeed because she consented to the medical procedures.
“If that was the standard,” Milot said, “there’s not a single professional athlete who would ever have taxable income” because getting injured is a routine part of their jobs.