Voting 11-5, the United States Tax Court ruled on February 3 that Rhiannon G. O’Donnabhain may claim a medical expense deduction on her 2001 federal income tax returns for some of the costs of her sex-reassignment surgery.
Gay & Lesbian Advocates & Defenders (GLAD), a Boston-based public interest law firm, represented O’Donnabhain in challenging the Internal Revenue Service’s assessment of a tax deficiency for that year based on its decision to disallow the deduction she had claimed.
The Internal Revenue Code authorizes a deduction for medical expenses that exceed 7.5 percent of adjusted gross income, but generally excludes the cost of cosmetic surgery unless it is necessary to repair a serious deformity resulting from illness or an accident. The IRS has consistently taken the position that sex-reassignment surgery is cosmetic surgery, because it involves an otherwise physically healthy individual who seeks to improve their appearance. ìGender Identity Disorderî (GID), in the view of the IRS, is not a ìdiseaseî that requires medical treatment, since there is no established physical cause for it and sex-reassignment surgery doesn’t ìcureî it.
The big hurdle facing O’Donnabhain and GLAD was getting the Tax Court to accept the proposition that sex-reassignment procedures are a form of medical treatment for GID, which is a diagnosable medical condition. It appears from the lead and concurring opinions that all eleven judges who found for O’Donnabhain agreed that GID is a disease for which treatment is appropriate. In his opinion for eight members of the court, Judge Joseph H. Gale noted that numerous federal appeals courts have ruled in cases involving transsexual prison inmates that GID is a serious medical condition for which a prison must provide some sort of treatment, and that it has long been established that mental illnesses for which there are no identified physical causes, such as anorexia, can be treated as diseases for purposes of applying the Tax Code.
GLAD presented expert testimony about the medical standards followed by practitioners in diagnosing and treating gender identity disorder, which were strictly followed in O’Donnabhain’s case. The IRS countered with experts who contended, among other things, that there was controversy in the medical profession about sex-reassignment surgery; evidence was presented that some major research hospitals, even some pioneers in the field, have stopped performing these operations due to disagreement about whether they provide real ìtreatmentî for the underlying identity issues.
Having concluded that GID is a disease, Judge Gale asserted that ìhormone therapy, sex reassignment surgery and, under certain conditions, breast augmentation surgery are prescribed therapeutic interventions, or treatments, for GID outlined inî the standards of care published by the leading professional medical association concerned with transsexuality, the Harry Benjamin Association. ìIndeed,î he continued, ìevery psychiatric reference text that has been established as authoritative in this case endorses sex reassignment surgery as a treatment for GID in appropriate circumstances. No psychiatric reference text has been brought to the Court’s attention that fails to list, or rejects, the triadic therapy sequence or sex reassignment surgery as the accepted treatment regimen for GID.î
Finding that total consensus in the medical profession is not necessary under the Tax Code, Gale wrote, ìThe evidence is clear that a substantial segment of the psychiatric profession has been persuaded of the advisability and efficacy of hormone therapy and sex reassignment surgery as treatment for GID, as have many courts.î Since these procedures are undertaken to ìtreatî the medical condition, they are not merely cosmetic but are undertaken for a therapeutic purpose.
Another question the court confronted was whether sex-reassignment surgery is a ìnecessaryî treatment for GID, since expenses of elective surgery have been considered non-deductible in numerous cases. The court pointed out that the Tax Code does not require that a treatment be necessary in so many words, but if that were a requirement, Gale argued, sex-reassignment procedures might qualify, given expert testimony about the adverse consequences of denying such a procedure to a person diagnosed with ìsevereî GID, which was the case with O’Donnabhain.
However, even though it acknowledged that breast augmentation surgery might be undertaken in appropriate cases, the court found that O’Donnabhain’s expenses on this should be denied based on the conclusion it was undertaken primarily to enhance her feminine appearance rather than as an integral part of the sex-reassignment procedure. Her doctor had noted that she ìappears to have significant breast development secondary to hormone therapy,î which came before the surgery, and the court seized on this to deny that portion of her deduction. Drawing a line between ìcosmetic surgeryî and ìmedical treatmentî may be difficult, but here all 16 judges of the court, majority and dissenters, agreed these expenses were not deductible.
Three members of the court wrote separate concurring opinions, taking different analytical routes to the same ultimate conclusion stated by Gale in his lead opinion. Five judges dissented, asserting that all sex-reassignment procedures should be treated as cosmetic for tax purposes because they are not directed at treating physical illness.
The court indicated that its opinion could be appealed by the government to the US Court of Appeals for the 1st Circuit, based in Boston. The case was litigated in 2007 at the direction of Bush administration leaders at the IRS, so it will be interesting to see if the Obama administration pursues an appeal.