Payments to egg donor not excludable from income.

• Author: Beavers, James A.

The Tax Court ruled that a woman who received payments for undergoing the procedures necessary to donate her eggs could not exclude the payments from gross income as damages for personal injuries or physical sickness under Sec. 104(a)(2).

Background

Nichelle Perez is a 29-year-old single woman from Orange County, Calif. When she was in her early 20s, she learned about egg donation. In the egg donation process, a woman goes through a regimen of hormone injections to stimulate egg production and, at the appropriate time, the eggs are retrieved through a surgical procedure and provided to an infertile woman who wishes to conceive a child. In almost all cases of egg donation, the donor is compensated for going through the egg-donation process. After searching the internet, Perez found Donor Source International LLC, an egg-donation agency in Orange County that matches egg donors with women and couples struggling to conceive on their own.

The Donor Source, a for-profit California company that has been in business since 2003, is one of approximately 30 donor agencies in California. The donor submits an application to the company and, if selected, is invited for a consultation to review the details of the donation program. Potential donors are also subjected to a series of psychological and physical evaluations, including blood tests, pap smears, breast exams, and pregnancy tests. Once approved by The Donor Source, the potential donor creates an online profile that includes a picture, a description of her family history, and other personal details for prospective parents to view. The Donor Source offers donors a fixed fee for going through the egg-donation process and also promises reimbursement for expenses in traveling to and from medical appointments.

Once a prospective set of parents picks a donor to provide the egg donation, the donor signs two contracts, one with The Donor Source and one with the anonymous intended parents. These contracts let The Donor Source, with the approval of the intended parents, terminate the relationship with the donor up until the time the donor begins receiving egg-stimulation hormone injections.

Perez signed one contract with The Donor Source in February 2009. It stated:

Donor Fee: Donor and Intended Parents will agree upon a Donor Fee for Donor's time, effort, inconvenience, pain, and suffering in donating her eggs. This fee is for Donor's good faith and full compliance with the donor egg procedure, not in...