Integrated Wisdom

Surrogacy as a Tax Deduction

IRS should not allow such deductions under the law, but they have made exceptions. Is there a reason?

This piece is about a tax court case that was decided in September, 2017, regarding surrogacy expenses. The couple in question lost the initial trial and their appeal. The below article was written by an IRS employee, and these views do not necessarily reflect those of the U.S. Department of the Treasury or the Internal Revenue Service.

Surrogacy is an agreement whereby a woman carries a pregnancy for another person or couple, who will become the newborn child’s parent after birth. The ruling in September, 2017, determined that no one is allowed to deduct their surrogacy expenses unless the surrogate is already a dependent. This ruling is consistent with the tax law, but the IRS has allowed it in the past, making it seem that they’re applying the law arbitrarily. This article is not so much about surrogacy as it is about equal treatment under the law and the possibility that they’re using their rulings to dictate morality.


Professor Joseph Morrissey, a lawyer, and his partner are in a committed, monogamous, homosexual relationship. This has been legal in the United States since 2015. However, legal as it may be for same-sex couples to get married, the practical aspects of biology dictate that they cannot create a child without a third party.

Joseph Morrissey and his partner considered adopting, but at the time in 2010 the state of Florida made adoption illegal for homosexuals. Morally, they could not conceive a baby, but lawfully, they could use a surrogate. That ended up costing about $100,000 over the course of several years.

The Court Ruling

The couple tried to deduct the cost for a surrogate, but was denied by the IRS. The case went to the Tax Court where it was argued by Professor Morrissey that, being a homosexual in a committed relationship, he could not have had a child with a woman in the traditional way. The IRS’ position was two-fold:

  1. Professor Morrissey was making a choice not to have a sex with a woman, and
  2. The law when he filed his tax return was that surrogacy expenses were not deductible.

In closing the original case and his appeal, Professor Morrissey contended that he was being discriminated against – that it was not a “choice” to take on this expensive and alternative route, but the only legal, ethical, and moral means by which he could have operated as a citizen of the United States and resident of Florida.

Obviously, Joseph Morrissey nor his partner carried this baby, so the in vitro process did not directly affect them physically. This matters because when a heterosexual couple uses a surrogate in a similar situation – where they cannot conceive without one – they cannot deduct the costs.

Now, given the law one is left to wonder, ‘why was this even an issue?’ The answer may lay in a 1995 case called Sedgwick v. Commissioner and in IRS Code § 213.

Sedgwick v. Commissioner

A similar case was made against the United States and settled in 1995. The settlement is unknown because it was done behind closed doors, and no written result was rendered, but it is known that the result was made in favor of the couple, meaning the government conceded the case.

IRS Code § 213 states that you cannot deduct surrogacy expenses. Section 213 allows for expenses to be deductible for yourself or your dependents, but surrogates are not usually your dependent, so the deduction is not allowed, hence the Morrissey ruling.

If this is the law and it is unshakable, then why would there be a settlement in favor of a petitioner? And if deductions were allowed in an earlier case, then why was it not extended to Morrissey and his partner who were simply “choosing” to obey their vows and respect the tenets of marriage, just as a heterosexual couple would do in the same situation?

Are There Reasons to Allow Surrogacy Deductions?

The only reason one would ever have surrogacy expenses is to have a baby, especially regarding this case given Florida adoption laws at the time. Unlike elective surgery, such as a facelift or benign mole removal, many people cannot grow a family without the assistance of a surrogate. Given that there is no other reason to do this, it could be deemed as necessary, as well as directly affecting the dependent child who will be claimed on that or the following year’s tax return.

Under current laws, a person can deduct the cost of a wig for mental health reasons. Is a wig necessary in order to function? The law states that it may be, and can be deducted. If a person is the fortunate recipient of a kidney, that taxpayer can deduct expenses he/she pays to cover any expenses incurred by the donor. Given the reasons for disallowing deductions for surrogacy, shouldn’t the taxpayer only be able to start taking deductions at the point of entry, meaning when the donor kidney becomes his/her own?

And that’s what is troubling. Inconsistency in the law has been, historically, a means of oppression, and while that might not be the purpose of its use in this case, knowing what we know going forward, the stage is set that prolonged enforcement of it may very well be such a tool.


The appeal of Morrissey v. United States of America was found in favor of the government. While the IRS’ comments about “choosing” to honor one’s commitments in a relationship was ignorant and ill-informed, they are moot in relation to the law.

It is odd that Joseph Morrissey could have deducted the costs of a kidney donor, but not a womb donor, in 2011, but that was the law when he filed the return. It’s also odd that one could deduct the expenses to adopting a child — but the laws of 2011 Florida blocked them from that option because same sex couples could not legally adopt. And so they were forced, by the law, to take on the expenses of surrogacy.

Lastly, it would be interesting to find out why the settlement in the case of Sedgwick v. Commissioner was rendered. Given that 22-year-old case, which was similar in nature, the results of this case seemed to simply come down to what the judge believes, the depth of his courage, and his conviction to execute that ruling.

Whatever one’s stance is on social issues, the arbitrary application of laws has to be a concern to all.

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