The Tax Court has held that an egg donor must include in income the compensation she received from an egg donation agency that matches egg donors with women and couples struggling to conceive on their own.
The case,
The taxpayer, Nichelle Perez, received $10,000 for each of two donations of eggs she made under contract with Donor Source, a California-based egg donation agency. The contract stated: “This fee is for Donor’s good faith and full compliance with the donor egg procedure, not in exchange for or purchase of eggs and the quantity or quality of eggs retrieved will not affect the Donor Fee.”
The contract also provided that Perez’s payment is “in consideration for all of her pain, suffering, time, inconvenience, and efforts.”
Donor Source sent Perez a Form 1099 for $20,000 for tax year 2009. After consulting other egg donors online, Perez concluded that the money was not taxable because it compensated her for pain and suffering. The IRS disagreed and sent her a notice of deficiency.
The Tax Court acknowledged that the case has “received some publicity in tax and nontax publications, which is why is important to state clearly what it does not concern. It does not require us to decide whether human eggs are capital assets. It does not require us to figure out how to allocate basis in the human body, or the holding period for human body parts, or the character of the gain from the sale of those parts.”
The court stated that the only issue it had to address was under Tax Code section 104(a)(2), whether a taxpayer who suffers physical pain or injury while performing a contract for personal services may exclude the amounts paid under that service contract as “damages received on account of personal physical injuries or physical sickness,” even though the taxpayer knew that such injury or sickness might occur and consented to it in advance.
The court held that the compensation was not “damages” under the terms of the statute and must be included in Perez’s income.
“We see no limit on the mischief that ruling in Perez’s favor might cause,” the court stated. “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.”
