In a recent private letter ruling, the IRS clarified its stance on the deductibility of medical expenses related to fertility treatments, approving deductions for certain in vitro fertilization (IVF) costs while denying deductions for expenses associated with gestational surrogacy.
The IRS recently allowed a married couple to deduct several IVF-related expenses under Internal Revenue Code (IRC) Section 213, which permits deductions for unreimbursed medical expenses that exceed 7.5 percent of a taxpayer’s adjusted gross income (AGI). Approved deductible expenses included:
- Fertility screenings and diagnostic tests
- Fertility medications and hormone treatments
- Egg and sperm retrieval procedures
- Embryo creation and storage
These expenses were deemed to qualify as “medical care,” defined under Section 213(d) as costs incurred for the diagnosis, cure, mitigation, treatment or prevention of disease, or for affecting any structure or function of the body.
However, the IRS denied deductions for costs related to gestational surrogacy, including:
- Compensation paid to the gestational carrier
- Medical insurance for the surrogate
- Legal and agency fees
- Childbirth-related expenses for the surrogate
The IRS reasoned that these expenses were not incurred for the medical care of the taxpayer, the taxpayer’s spouse, or a dependent, as required by law. Since the surrogate is a third party and not a dependent, her medical costs and related fees fall outside the scope of deductible medical care under Section 213.
This ruling underscores the IRS’s interpretation of deductible medical expenses in the context of third-party reproductive assistance. While IVF procedures directly involving the taxpayer or their spouse may qualify, costs associated with surrogacy arrangements do not—regardless of medical necessity or the taxpayer’s infertility diagnosis. Taxpayers considering fertility treatments involving surrogacy should consult with tax professionals to understand the financial and tax implications, including what is deductible and what is not. For questions or more information, contact your Windham Brannon tax advisor today, or reach out to Tomika Bullet.
