When Your Body Is Your Business

• Publication year: 2021

WHEN YOUR BODY IS YOUR BUSINESS

Morgan Holcomb(fn*) and Mary Patricia Bym(fn**)

Abstract: Surrogacy in the United States is a multi-million dollar industry in which well paid professionals seek out specially qualified women to fill the difficult job of being a surrogate. Surrogates enter lengthy contracts in which they agree, in intricate and intimate detail, to provide a service for significant compensation-as a group, surrogates in the United States are paid well over $22 million per year. This Article argues that surrogates are professionals in this for-profit industry and are required to report surrogacy compensation as income. As a corollary, surrogates may deduct most of their surrogacy-related expenses as business deductions. Being a surrogate is a highly personal service and the expenses the surrogate incurs-such as for maternity clothes or medical care-are typically treated as nondeductible personal expenses, but when your body is your business, the personal is business.

INTRODUCTION................................................................................648

I.THE SURROGACY INDUSTRY.................................................650

A.Surrogates Are at the Center of a Multi-Million Dollar Industry...............................................................................651

B.Surrogacy Is a Profession................................................... 652

1.Surrogacy Demands Sacrifice and Skill.......................652

2.A Good Surrogate Is Hard to Find ............................... 655

C.Surrogates Enter into Complex Contracts..........................656

II.WHEN YOUR BODY IS YOUR BUSINESS, YOU HAVE TAXABLE INCOME....................................................................659

A.Surrogacy Payments Are Not Gifts....................................661

B.Surrogacy Payments Are Not for Pain and Suffering.........664

C.Surrogacy Payments Are Not Pre-Birth Child Support......666

D.Only Some Surrogacy Payments Are Nontaxable Reimbursements ................................................................. 668

III.PAYING TAXES WHEN YOUR BODY IS YOUR BUSINESS.....................................................................................670

A.Surrogates Have Tax Responsibilities as Employees or Independent Contractors.....................................................670

B.As Professionals, Surrogates Should Consider a Variety of Tax Benefits...................................................................674

1.Some Surrogates Are Eligible for the Earned Income Tax Credit.......................................................675

2.Surrogates Are Professionals Who May Deduct Business Expenses Under Various Code Provisions ... 675

a.Surrogacy Is a "Trade or Business" Under the Code ....................................................................... 677

b.Surrogates' Expenses Are "Ordinary and Necessary".............................................................680

c.In Surrogacy, Personal Expenses Are Often Business Expenses................................................. 681

CONCLUSION....................................................................................685

INTRODUCTION

"Death, taxes, and childbirth! There's never any convenient time for any of them . . ."

- Margaret Mitchell(fn1)

Surrogacy first gained national attention in 1987 when surrogate Mary Beth Whitehead entered a very public custody dispute with intended parents(fn2) William and Elizabeth Stern.(fn3) Since then, surrogacy has become a multi-million dollar industry in the United States.(fn4) Lawyers, doctors, agency directors, gamete donors, and surrogates(fn5) work together to meet the needs of intended parents. A typical surrogacy costs the intended parents between $75,000 and $150,000, which includes payment to a surrogate of roughly $20,000 plus expenses.(fn6)

Academic discussion of the cost of surrogacy, and of Assisted Reproductive Technology (ART)(fn7) in general, has focused primarily on the intended parents.(fn8) Calls for including ART in insurance plans and for allowing intended parents to deduct ART expenses from gross income for tax purposes have been heard in both academic literature and the popular press.(fn9) What have been discussed less frequently, however, are the financial implications of surrogacy for the surrogates themselves.(fn10)

It is readily accepted that the lawyers, doctors, and agency directors involved in the ART industry are professionals and are in business to make a profit. In contrast, most people do not describe surrogacy-that is, the act of gestating the child-as a job, and do not consider the women who perform this service to be surrogacy professionals. This Article views surrogacy through the lens of the Internal Revenue Code to establish that surrogacy is in fact a trade or business and that, despite the quintessentially reproductive nature of surrogacy, surrogates are ART professionals who seek to make a profit doing a unique job.

Part I of this Article demonstrates that surrogates are professional service providers in the surrogacy industry. Surrogacy agencies seek out specially qualified women to undertake the demanding, risky, and critical job of gestating a child for another person. Moreover, surrogates enter into complex contracts and are compensated for their labor just like other businesspeople. Part II shows that surrogacy compensation is taxable income. Surrogates and the ART industry seem to presume that payments to surrogates are not taxable income based on one of four theories: (1) that surrogacy payments are gifts, so they are not income; (2) that the payments are excludable from income because they qualify under the pain and suffering exception; (3) that the payments are pre-birth child support, so they need not be included in income; or (4) that the payments need not be reported because they are reimbursements.(fn11) This Part will show that all of these arguments fail and that surrogacy compensation is simply, and unmistakably, taxable income. In Part III, we demonstrate that because surrogacy is a "trade or business" under the Code, surrogacy-related expenses qualify as business deductions. Surrogates, whether they are independent contractors or employees, have ordinary and necessary expenses that are in fact deductible as business expenses despite their seemingly personal nature. As such, when a woman is a surrogate, her body is her business.

I. THE surrogacy INDUSTRY

Surrogacy in the United States is a multi-million dollar business.(fn12) Lawyers, doctors, agency directors, and surrogates seek to meet the needs of their customers, intended parents, by providing surrogacy services for profit. The agencies recruit and rigorously screen surrogacy applicants, selecting only those women who have the necessary experience and aptitude to be a successful surrogate.(fn13) The surrogate then enters into a complex contract with the agency or intended parents in which the surrogate agrees to provide certain services for payment.

A. Surrogates Are at the Center of a Multi-Million Dollar Industry

Surrogacy statistics are difficult to obtain, but the U.S. government conservatively estimates that more than 1000 births from surrogacy occur every year.(fn14) The average gestational surrogacy costs between $75,000 and $150,000, and the vast majority are facilitated by for-profit surrogacy agencies; these agencies are at the center of a $75-150 million-per-year industry.(fn15)

Surrogacy agencies choreograph the entire process, from matching of the surrogate and intended parents to administration and enforcement of contractual matters.(fn16) The agencies advertise in print media and on the internet for both surrogates and intended parents, screen all the parties involved, and arrange for any necessary medical and psychological testing.(fn17) Once the surrogate and intended parents are matched, the agency drafts the surrogacy contract and facilitates the various pre-pregnancy medical appointments for any sperm or egg donors, the surrogate, and the intended parents.(fn18) After a pregnancy is achieved, the agency typically facilitates the payments made from the intended parents to the surrogate and assists with any legal proceedings associated with terminating the surrogate's parental rights and vesting parental rights in the intended parents.(fn19)

B. Surrogacy Is a Profession

Along with the agencies, surrogates are vital participants in the surrogacy industry. In fact, similar to the surrogacy agency professionals, surrogates are uniquely qualified and are expected to provide individualized service in a professional manner.

1. Surrogacy Demands Sacrifice and Skill

The job of a surrogate is difficult and time-consuming. The would-be surrogate is first screened by the agency.(fn20) If she is approved, she is placed in the agency's catalog or database to be viewed by intended parents. If she is selected by intended parents she, and possibly her husband or partner, must undergo extensive psychological and medical testing.(fn21) After the testing, if all parties agree to work with one another, the would-be surrogate must negotiate the terms of a lengthy contract in which she agrees to carry a child to term, give up the child at birth, and terminate all parental rights to the child.(fn22) In...