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IRS follows tax court ruling and allows sex change costs as medical deductions

Someone alert Chaz Bono's accountant. Sonny and Cher's son might want to file an amended tax return since the IRS has decided that it will allow some sex change costs to be deducted as medical expenses.

The IRS decision basically follows a U.S. Tax Court ruling last year in O'Donnabhain v. Commissioner. In that case, the Court held that the cost of hormone therapy and sex reassignment surgery qualified as deductible medical expenses.

The IRS originally had disallowed the $5,679 medical expense deduction claimed by Rhiannon G. O'Donnabhain, who was born Robert Donovann, on her 2001 taxes as a cosmetic, not surgically necessary, operation.

But Tax Court Judge Joseph Gale ruled that the expenses for sex reassignment surgery and hormone therapy could be deducted. Gale, however, sided with the IRS in disallowing O'Donnabhain's costs of breast augmentation surgery.

Now the IRS has officially decided not to contest the Tax Court ruling.

In its notice of acquiescence in connection with the O'Donnabhain case, the IRS noted that the Tax Court agreed with O'Donnabhain that her gender identity disorder meets the tax code requirements for being considered a disease for which appropriate medical treatments are tax deductible. Specifically:

  1. The disorder is widely recognized in diagnostic and psychiatric reference texts.
  2. The texts and all three experts testifying in the case consider the disorder a serious medical condition.
  3. The mental health professionals who examined O'Donnabhain found that her disorder was a severe impairment.
  4. The Courts of Appeal generally consider gender identity disorder a serious medical condition.

Therefore, the IRS will follow the Tax Court in the O'Donnabhain decision.

As is standard in its rulings, the Tax Court noted (and remember, it's the court, not me, YELLING at you) that "THIS DOCUMENT IS NOT TO BE RELIED UPON OR OTHERWISE CITED AS PRECEDENT BY TAXPAYERS."

Still, you can be sure that every person with similar transgender medical costs is now setting up appointments to talk with their tax professionals.

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Jacob Michaels

And the IRS decided last year that those taking a daily aspirin to reduce their chance of heart attack or stroke was not a "HSA Qualified Expense"?!

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