Federal Income Taxation
| Publication year | 2018 |
Federal Income Taxation
Robert A. Beard
Gregory S. Lucas
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In 2017, the United States Court of Appeals for the Eleventh Circuit and courts within its jurisdiction decided a number of important federal taxation cases. Among these are a case that raises novel constitutional arguments under the Equal Protection Clause, a case that lodges a constitutional challenge to the United States Tax Court, and a case that addresses a matter of first impression in the circuit about the deductibility of amounts paid in the context of a divorce proceeding. These three cases are discussed herein.1
Occasionally, tax disputes implicate the United States Constitution. Morrissey v. United States2 represents one of those occasions, illustrating the unlikely intersection of the Equal Protection Clause of the Fifth Amendment3 with section 213 of the United States Tax Code (the Code),4 which allows for a deduction of certain medical expenses.5
In 2012, taxpayer Joseph F. Morrissey filed an amended return for the 2011 tax year, claiming a deduction under § 213 for medical expenses
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relating to a surrogate pregnancy.6 These medical expenses arose from Morrissey's own blood work and sperm collection, in the amount of approximately $1,500, as well as approximately $55,000 Morrissey incurred in procuring an egg donor and gestational surrogate. These latter expenses included the costs of identifying prospective donors and surrogates, paying for their travel and other expenses, and compensating them, in addition to paying for their direct medical expenses arising from the egg donation and surrogacy. The Internal Revenue Service (IRS) denied Morrissey the refund he claimed, explaining that § 213 does not permit deductions for the medical expenses of a person other than the taxpayer or the taxpayer's dependents or spouse.7 IRS Appeals upheld this determination, and Morrissey filed a refund suit in the United States District Court for the Middle District of Florida.8
Morrissey made two arguments at the district court, both of which were rejected at summary judgment.9 The first argument was that the plain language of § 213 permits the claimed deduction. The second argument was that the Equal Protection Clause of the Fifth Amendment requires the IRS to permit the deduction. Morrissey raised these same arguments again on appeal to the Eleventh Circuit.10
As for the statutory argument, § 213(a) allows a deduction for expenses not compensated by insurance or otherwise for the medical care of the taxpayer, the taxpayer's dependents, or spouse to the extent that the expenses exceed 10%—7.5% for the year at issue in this case—of the taxpayer's adjusted gross income.11 Section 213(d)12 defines "medical care," specifying that it means amounts paid "[f]or the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body."13 Morrissey argued that the in vitro fertilization (IVF) treatment did amount to deductible medical care because the treatment, although performed on another person, was "made for the purpose of affecting his body's reproductive function."14 This is because Morrissey, a homosexual man, is physiologically incapable of reproducing with his male partner, and thus,
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his only means of fathering his own children is through the IVF procedures.15
The IRS has ruled on various aspects of what constitutes deductible "medical care." The logic behind some of the distinctions is not always entirely clear. One revenue ruling explains that both hair transplants and hair removal are forms of medical care because they affect structures of the body (the scalp and hair follicles), but tattooing and ear-piercing are not medical care because they (according to the ruling) do not affect a structure of the body.16 Although the cosmetic changes achieved by tattooing and ear-piercing are not medical care, the IRS elsewhere ruled that a facelift performed for purely cosmetic reasons is medical care.17 Expenses need not relate directly to the taxpayer's body (or the body of a dependent or spouse) to be deductible medical care expenses. Transportation and lodging expenses can be medical care expenses, as can be insurance premiums.18 Two longstanding revenue rulings hold that § 213 permits deductions of expenses relating to "[t]he acquisition, training, and maintenance of a dog for the purpose of assisting a dependent who is deaf."19 On the reproductive front, the IRS has ruled that vasectomies, abortions, and sterilizations are forms of medical care.20
A few authorities have addressed IVF and surrogacy in the § 213 context. In Magdalin v. Commissioner,21 the Tax Court denied a single, fertile man a deduction under § 213 for IVF expenses for an egg donor and surrogate.22 The United States Court of Appeals for the First Circuit affirmed, explaining that such expenses were "[n]ot for the purpose of affecting any structure or function of [the] taxpayer's own body," but rather "affected the bodies of the gestational carriers."23 In Longino v.
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Commissioner,24 the Tax Court denied a deduction to a male taxpayer for his fiancée's IVF treatments for the same reason.25 The Eleventh Circuit affirmed in an unpublished opinion, finding that the taxpayer "had presented no evidence that any of the alleged care involved him, his spouse, or a dependent."26 The IRS has, however, on at least one occasion permitted a taxpayer to deduct expenses relating to a third-party egg donor where the embryo was then implanted in the taxpayer's body.27
The Eleventh Circuit rejected Morrissey's argument that § 213 permitted his claimed deduction. The court focused on the statutory language, in particular the terms "affecting" and "function" in § 213(d)(1)(A).28 Turning to the dictionary, the circuit court decided that, in order for the IVF treatment to "affect" a function of Morrissey's body, it would have to "materially influenc[e] or alter[]" that function.29 As for "function," the court stated that that term "denotes a person's or thing's unique task or role."30 Further, a "function of the body" should be read to mean the function of a single, particular body, rather than a function "achieved by the cooperation of multiple bodies."31 Morrissey's error, the court explained, was to mistake "the entire reproductive process for his own body's specific function within that process."32 The court thereupon pronounced that "[t]he male body's necessary function within the reproductive process is simply stated: it must produce and provide healthy sperm capable of fertilizing a female's egg."33 As long as a male body can contribute viable sperm, there is no functional impairment. There being no argument that Morrissey had any functional impairment of that nature, the Eleventh Circuit held that § 213 did not allow the claimed deduction.34
Having disposed of Morrissey's statutory argument, the court turned to his constitutional claim. Morrissey argued that the IRS disallowance of his claimed deduction should be subject to strict scrutiny because it
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infringes on a fundamental right—the right to reproduce.35 Alternatively, some level of heightened scrutiny should apply because the disallowance discriminated against him on the basis of sexual orientation.36 That is, in Morrissey's contention, the IRS's application of § 213 treats homosexual and heterosexual taxpayers unequally.
The court conceded that Supreme Court precedents indicate that there is, under some circumstances, a fundamental right to procreation, such that the Constitution is implicated, but found no specific fundamental right to procreation via IVF procedures.37 These procedures, along with surrogacy, are "decidedly modern phenomena" that, as the court noted, raise serious ethical issues and risk bringing different rights into conflict.38 The court mentioned that numerous states have wrestled with the issue of what rights surrogates have in such arrangements. Because there was no longstanding recognition of a right to IVF-assisted procreation, and legislatures were still working through the conflicting claims of participants in those procedures, the court declined to step in and find a fundamental right to procreation through IVF.39 Thus, the court rejected Morrissey's argument that strict scrutiny should apply to the IRS's denial of his claimed deduction.40
The court avoided directly addressing the question of whether some level of heightened scrutiny applies to discrimination on the basis of sexual orientation because it determined that Morrissey had not been treated differently than heterosexual taxpayers.41 First, the court noted that the language of § 213 makes no distinction between homosexual and heterosexual taxpayers.42 Thus, there were no grounds for a facial challenge to the statute. Second, the court stated that there was no evidence that the IRS applied § 213 to Morrissey's claim for a deduction any differently than the IRS has applied that section to heterosexual taxpayers who have claimed similar IVF-related expenses.43 As mentioned, the two courts that have addressed this issue in relation to heterosexual taxpayers (in Magdalin and Longino) have both held that § 213 did not permit such deductions. Moreover, the IRS issued guidance
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in 2002 stating that "medical expenses paid for a surrogate mother and her unborn child would not qualify for deduction under § 213(a)."44 Thus, Morrissey had not produced evidence to show that he had been treated differently on account of his sexual orientation.45
Morrissey stands as an example of how litigants are testing out the extent of the courts' willingness to extend the rights guaranteed in recent Supreme Court rulings relating to sexual orientation, most notably Obergefell v. Hodges,46 which held that the Fourteenth Amendment47 guaranteed a right...
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