ABA Adopts the Model Act Governing ART Agencies

The Assisted Reproductive Technology (ART) Committee of the American Bar Association, Section of Family Bar, brings together attorneys from all over who practice Assisted Reproductive Law. The Committee has become a place of leadership and guidance for all professionals in the field to aid in the understanding and practice of the complex and ever evolving landscape of ART law. Over the years the Committee has made great strides in the field. They have put on comprehensive continuing education classes for attorneys, which have been so successful that they have become a staple and significant portion of the ABA Family Law Conferences that happen twice a year and the group that attends the classes is growing every year.

Most recently, the Committee had a tremendous victory as its proposed The ABA Model Act Governing Assisted Reproductive Technology Agencies was passed and accepted into the ABA. A handful of prominent attorneys in the field including our very own Robert T. Terenzio, have been working on this Act for over twelve years to develop the Act and get it through the approval process. Forging a path for ART has not been easy and to now have a Model Act that will help further the safety and ethical practices, is a feat worth celebrating.

ART law is not nationally regulated and most states have differing laws and regulations when it comes to ART. Many do not address agencies and/or the commercialization of ART, making those relying upon ART an easy target for abuse. The Act’s purpose is to minimize exploitation of persons suffering from infertility as well as those working with them by setting guidelines that the unregulated and unlicensed industries involved in ART can follow. These guidelines are aimed at those industries that, unlike the medical, legal, and financial parties, do not yet require any sort of licensing to be an integral part of the ART journey.

Infertility affects a person physically, emotionally and psychologically. Any agency or person they work with to help them fulfill their dream of having a child has to be understanding of this and not take advantage or exploit these individuals. While most agencies do a great job of helping their clients, there are unfortunate situations where an Agency will capitalize on the vulnerability of a person who is doing whatever they need to in order to have a child. There have been cases of fraud, theft, and coercion and the Model Act is aimed at preventing that. Just last year a California based agency owner cheated its clients out of approximately $270,000.00. That owner was sentenced to 18 months in prison. (see article here)

The Model Act will require agencies to obtain a license within their jurisdiction and as a result will have certain affirmative duties in order to maintain the license. These include things such as not giving medical or legal advice, providing clients an easy to read description of their services, maintaining client confidentiality, requiring funds be held in an escrow account and continuing education. The Act also provides repercussions for not following the requirements, including fines of up to $25,000.00 for any one violation. The Act reiterates the importance of not defrauding or coercing its clients and to engage in fair practices.

What states will actually adopt the Model Act is still unknown but the step has been taken and the information is there. This is a great accomplishment for the ABA ART Committee, but more importantly, an impactful leap towards fair and ethical practices in the ART world.

Tax Court Rules: Egg Donor’s Compensation Must be Taxed

On January 22, 2015 the US Tax Court, in Perez v. Commissioner of Internal Revenue (144 T.C. No.4), ruled that an egg donor’s compensation for pain & suffering must be included in gross income and therefore taxed. The conclusion was that egg donors must report any compensation earned for their donation.

The plaintiff is a two-time donor who was donating through an agency. She decided not to report her compensation from either donation. Her belief, like that of many, was that the payments were “damages” for her pain and suffering, not compensation as income for her role in the donation.Gavel Pic

Section 104 (a)(2) of the Tax Code excludes damages from taxable income. It excludes from gross income, “… the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.”

The Court referred to a number of cases and reasoned that damages are derived from a tort claim, legal action, and/or a settlement. Donor compensation is given in return for a waiver of the pain and suffering that is expected to occur as evidenced in the agency contract. The contract states, “This fee is for Donor’s good faith and full compliance” so the court held that the fee was compensation for services rendered and not damages for pain and suffering.

Those persons acting as egg donors are now on notice that payments arising from a donation are taxable. The question remains whether an agency or an intended parent must issue a 1099 to a donor, as well, as whether this case applies to gestational carriers as well. The case does not specifically address these issues, so we can only speculate.