Surrogacy, Egg Donation, and Taxation

Be a surrogate
To tax or not to tax?

Taxation is one of the oldest hot-button issues to still regularly confront our society today. Each time that there is a new, potentially taxable aspect of our personal or professional lives, there is controversy. 1099s, which are forms that are issued reporting certain types of taxable income, have been a thorny issue among egg donors and surrogates for years. The legal language surrounding the matter was formerly anything but clear. Now, however, the IRS has officially levied a ruling: compensation for pain and suffering resulting from the consensual performance of a service contract cannot be considered “damages.”

Income received from egg donation and gestational surrogacy contracts is now officially, and very clearly, taxable – as a part of the service provider's “gross income.”

That ruling has been handed down in the case of Perez vs. Commissioner, which was the first case to address the inclusion of income derived “from the sale or donation of human eggs and related services.” The case revolved around a woman who was issued a 1099 from a surrogacy agency after being paid $20,000 for two egg donations in 2009. She did not include this amount on her federal income tax return, citing pain and suffering as a result of the process.

Taxing Egg Donors and Surrogates: A Thorny Issue

There are certain indisputable facts involved in the case, as in all legal egg donation contracts. These facts are what ultimately led to the case being decided against Perez.

Prior to 2009, Perez had donated her eggs on no fewer than three other occasions – and always through the same agency, Donor Source. Perez donated her eggs once in 2007, and twice in 2008. After receiving notice from the IRS that she was to be taxed on her income from egg donation in 2008, she reached out to other donors online for advice.

“I did what they said they had done,” Perez stated during during the course of proceedings concerning her 2009 income from egg donation. “I stated that the income was for pain and suffering, and I sent the page of the contract which stated that.”

However, donor and surrogate compensation has never been for damages. Nor is it a gift, which some have claimed – a claim which leads to another thorny legal wrangle. A contractually obligated “gift” can be legally contested, and the intended parents could walk away from the agreement without paying anything to the donor or surrogate involved.

The fact is, compensation for egg donation and gestational surrogacy is not a purchase of a body part, or of a child. It is the purchase of services, performed within the scope of a binding contract. From that point of view, taxing Perez's earnings as being from the provision of a service – in compensation for her expenditure of time, and for her personal inconvenience – seems to be the appropriate way to proceed. This is a point of view which has received a lot of support from the fertility community. Many agencies were concerned about the future of the industry, if it were to become standard practice to skip out on paying taxes.

Perez's pain and suffering was quite real. It was likely in excess of that which is typical to the experience, and the typical experience isn't completely comfortable: it is inconvenient and difficult to schedule. It involves a wide variety of medical examinations, blood tests, and pap smears. An approved candidate undergoes a series of invasive examinations and hormone injections, which often leave her extremely bruised and sore – particularly around her lower abdomen. However, the court found that Perez's suffering was “within the scope of the medical procedures to which she contractually consented. Twice. She voluntarily signed a contract to be paid to endure (the egg donation procedure). This means that the money she received was not ‘damages.’”

Far-Reaching Effects

Many agencies have reacted positively to the decision. As a whole, the fertility industry is a compassionate one, and nobody wants to see anybody suffer any kind of medical procedure without fair compensation. However, from the point of view of ConceiveAbilities, it is strongly felt that we have reached a certain point in the fertility industry. More progressive and compassionate laws concerning alternative fertility treatments are being considered in many parts of the United States, and in a number of developed countries around the world – including Canada, the United Kingdom, and Australia.

We are at a point where there simply must be a widely-understood and adhered-to standard at every step of the process, for both egg donation and surrogacy. It must be clearly understood that these procedures are being strictly regulated by responsible agencies. This includes paying taxes owed for income earned for providing a service.
For more information about egg donation, click here. For information specific to how ConceiveAbilities compensates our egg donors, follow this link.