Archives for January 2015

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.

Same Sex Marriage and Gestational Surrogacy in Florida

There has been much speculation regarding what exactly will happen to the gestational surrogacy process now that the ban on same sex marriage has been lifted.  As of January 6th, 2015, same sex couples can get married and the Florida clerks can issue marriage certificates. Past conversations with counsel for Vital Statistics revealed that as same sex marriages are not recognized in Florida, they are estopped from seeking parentage through an Affirmation of Parental Status.  The response then to this bar would require termination of the surrogate from the parent child relationship in favor of the biological Intended Parent and adding the second Intended Parent via a second parent adoption.  Thus, the couple was paying for two separate legal proceedings as well as home study, and with a significant time gap between the birth of the child and the finalization of parentage.

SS FlagFlorida’s marriage statute, 741.212(3) states that, “… the term “marriage” means only a legal union between one man and one woman as husband and wife, and the term “spouse” applies only to a member of such a union.”  Earlier this month, U.S. Federal Judge Robert L. Hinkle released a statement clarifying his decision finding the state’s ban unconstitutional. To clarify whether all jurisdictions should follow suit, Judge Hinkle wrote, “Reasonable people can debate whether the ruling in this case was correct and who it binds… There should be no debate however, on the question whether a clerk of court may follow the ruling, even for marriage-license applicants who are not parties to this case.” This statement by Judge Hinkle makes it clear that all clerks are and should follow the ruling and that if they don’t they would be inviting a lawsuit.

The Florida gestational surrogacy statute says a Commissioning Couple can partake in a surrogacy.  The statute at Section 742.15(1) states, “A contract for gestational surrogacy shall not be binding and enforceable unless … the commissioning couple are legally married …”

Judge Hinkle’s decision arguably impacts the Surrogacy Statutes by now including married, same sex couples into the group of persons who obtain parentage through an affirmation.  Our firm has spoken to the Office of Vital Statistics and they will accept an Order Affirming Parental Status and issue birth certificates with both parents’ names.  We also spoke to the Orange County judges to confirm their understanding of the effect of Judge Hinkle’s ruling upon surrogacy. The judges we spoke with will sign affirmation of parentage orders for married same sex couples following a gestational surrogacy so long as all of the statutory requirements are met. This confirms that, although discretionary, married same sex couples can rely upon the Florida gestational surrogacy statutes with the same confidence as married, heterosexual couples.

We will report back on other Counties and any feedback as it becomes available.