The tax treatment of sperm and egg sales

by on February 21, 2014 at 6:50 am in Economics, Law, Medicine | Permalink

But what kind of income is it?:

Also, Perez could pay lower tax rates on the income if it were treated as long-term capital gains. Eggs could be considered property she had possessed since birth, in which case the sale could be seen as a long-term capital gain.

If they’re not considered property until removed from her body, the eggs could be seen as generating short-term gains.

Richard Carpenter, Perez’s San Diego-based attorney, said the judge said after the trial that the capital gains questions wouldn’t apply in this case.

I like the phrase “future sperm tax certainty” from the title of the piece.  There is more here, from Richard Rubin.  For the pointer I thank Vic Sarjoo.

1 Rob42 February 21, 2014 at 7:16 am

The hard part with treating egg donation as a sale of property is how to treat the medical costs associated with preparing her for donation and removing the donated eggs. These all benefit the property, which she presumably continues to own until some moment after they are removed from her body, in which case, are the reimbursed medical costs ordinary income to her that she has to capitalize into her basis in the donated eggs. Depending on those medical costs, this could trigger an ordinary income capital loss mismatch. Or, do we just add the medical cost reimbursement to the total amount realized on the sale (and still add the costs to the basis)? This may give a more equitable result, but I’m not sure it is correct.

2 BC February 21, 2014 at 10:09 am

I’m not sure whether you are serious or joking but, in all seriousness, she would have had a stronger argument (though probably not winning) had she argued that she should be able to deduct not just medical costs but also any health-related expenses — food, shelter, fitness, etc. — from the 20k in income. After all, maintaining a healthy body over her lifetime was a necessary expense to protect and maintain the eggs. Instead, she argued pain and suffering which makes no sense since, as the article points out, she “donated” eggs voluntarily…twice.

Aside: I’m not sure why the article used the term “donating”. It’s not a donation if one is paid.

3 arbitrary aardvark February 21, 2014 at 1:32 pm

“donating” is medical industry jargon. they don’t like admitting that we sell this stuff and it should be treated as a business. in her case, it should be taxed as “other income”,not subject to self-eployment tax. twice is not often enough to establish this as regular gig for her. i make a living as a participant in medical experiments, and i do it often enough that it’s properly considered self-employment, but for her it should not be.

4 BC February 21, 2014 at 10:20 am

Actually, perhaps her strongest argument would have been to claim the eggs as a charitable donation of property worth 20k. One does not need to realize a capital gain when donating property even when one deducts the full current market value of the property. The 20k in cash that she received would be offset by the 20k charitable deduction for the eggs. Obviously, this line of argument would not work if no one is allowed to deduct egg donations even when they don’t receive any cash in exchange.

5 BC February 21, 2014 at 10:30 am

Apparently, under IRS logic, getting paid for eggs and body parts generates taxable income but donating them for free does not generate a charitable contribution []

6 Alexei Sadeski February 21, 2014 at 11:28 am

Because the recipient is not a non-profit.

7 Norman Pfyster February 21, 2014 at 1:15 pm

Further to Alexei’s comment, gifts are taxable to the donor, not the recipient.

8 Haefner February 21, 2014 at 10:38 am

ObamaCare added excise taxes on a vast array of common medical devices, including those used in personal blood donations/sales. Personal blood sales and commercial resales of donated blood (the Red Cross does some of that) involve the same tax issues as egg/sperm/organ/hair-for-wigs/etc sales. Blood sales taxes in particular have been a longstanding tax policy issue, with wide policy variation among state and local governments.

But the big picture trend of tax policy is always the same — new and higher taxes in every possible area. There is no point at which our government will achieve its permanently desired tax level; more is always required at some point.

9 jpe February 22, 2014 at 8:35 pm

Expenses would presumably just be above the line deductions. If they exceed income, probably nondeductible hobby losses.

10 Just another MR Commentor February 21, 2014 at 7:18 am

I enjoyed this article as it highlights the utter absurdity of the capital gains tax.

11 prior_approval February 21, 2014 at 7:37 am

If only the link to this 1999 article from the New Yorker could be posted –

12 Just another MR Commentor February 21, 2014 at 7:39 am

Sorry, I don’t understand your constant complaining about linking to the ultra-hard-left New Yorker. The link works fine.

13 prior_approval February 21, 2014 at 11:27 am

Don’t worry, just another commentor – much like the previous inability to actually link to the center of which Prof. Cowen is the general director, a quick correction of what is filtered in the comment section links has been promptly made after being made public.

It was undoubtedly only a coincidence anyways, of the sort which only the most cynical sort would attribute to anything other than the most pure of motives.

14 Just another MR Commentor February 21, 2014 at 11:32 am

Alles Klar! Sehr Gut mein Badischer Nachbar Herr Approval. Grüße aus Bayern. Haben Sie eine Schönes Wochenende.

15 Just another MR Commentor February 21, 2014 at 7:43 am

I’m sure you were doing something wrong there’s no crazy conspiracy here. The only conspiracy to worry about is the conspiracy between Big Labour and Big Government to limit the number of H1B visas being offered.

16 Mark Thorson February 21, 2014 at 9:08 am

Shitting on every thread is an accurate description.

17 msgkings February 21, 2014 at 12:01 pm

Who, p_a or JaMRC?

They are both pretty tiresome but at least JaMRC is trying to be funny.

18 msgkings February 21, 2014 at 12:01 pm

Reply to Mark Thorson

19 Just another MR Commentor February 21, 2014 at 12:36 pm

I’m nothing more than just another Marginal Revolution commentor…

20 prior_approval February 21, 2014 at 1:04 pm

Not to mention that another commentor is apparently trying to comment in every single post, a task approaching heroic dimensions.

I instead just enjoy discovering the contours of how this web site works, in an old fashioned GMU PR dept. sort of way. For example, now anyone can link to the New Yorker in this comment section – something not possible just a few hours ago.

21 Rahul February 21, 2014 at 1:19 pm

JaMRC is an outright troll. Wish they ban him.

22 Kabal February 21, 2014 at 8:17 am

Sounds like something out of Crichton’s “NEXT.”

23 chuck martel February 21, 2014 at 9:35 am

” Lisa Milot, an associate law professor at the University of Georgia who studies the regulation of the human body.”

If that line of study has become viable it’s time to start building barricades.

“Grant Williams, an IRS spokesman, declined to comment on the case….”

A public employee, paid with tax dollars, whose job is to create verbiage, refuses to do so. It’s past time to build barricades.

24 Just another MR Commentor February 21, 2014 at 9:40 am

I agree with your sentiment but take note that virtual currencies are going to be going mainstream over the next few years rendering governments unable to tax period.

25 Alexei Sadeski February 21, 2014 at 11:31 am

Virtual currencies are entirely unrelated to taxation.

In the event that virtual currencies do become related to tax evasion, they will be banned

26 Just another MR Commentor February 21, 2014 at 11:52 am

The potential of virtual currencies like Bitcoin is just massive. They’re untraceable, once people start accepting pay in Bitcoins income tax and sales taxes are dead. I believe investment banks will get the ball rolling by paying out bonuses in Bitcoins. Investment Bankers are the sort of fearless, driven people willing to take the seemingly daunting plunge. The government can try to stop this transformation but it’s identical to plugging a volcano with a boulder.

This is why I don’t worry at all about these taxation issues, ten years from now it’s going to be an unrecognisable world due in large part to virtual currencies. In terms of portfolio I recommend gold of course, bitcoins, and equity in very strong, future oriented companies – Facebook being the prime example here.

27 Alexei Sadeski February 21, 2014 at 12:12 pm

You know that taxes existed before the advent of traceable currencies, yes?

You know that if BTC becomes popular for tax evasion that it will be banned, yes?

The potential is nil.

28 Just another MR Commentor February 21, 2014 at 12:41 pm

I don’t like to use harsh words but frankly you’re being a bit of a Downersaurus Rex. I’m optimistic about the possibilities of this new technology. But I guess we must agree to disagree.

29 Edward Burke February 21, 2014 at 9:53 am

Organ sales for transplantation remain illegal, though, do they not?

30 Jane the Actuary February 21, 2014 at 12:36 pm

You know, this is a cute idea, but it ultimately points to the absurdity of labelling some types of investments “capital gains” (stocks) and others not (for instance, rental properties), and taxing them differently.

31 byomtov February 21, 2014 at 6:05 pm

Isn’t a gain on the sale of rental property treated as a capital gain?

32 jpe February 22, 2014 at 8:37 pm

Yep. (Excepting depreciation recapture)

33 jpe February 22, 2014 at 8:41 pm

Consider risk of principal as determinative of capital treatment. If you buy a bond, you’re entitled to your principal back. If you rent your house or license IP, you’re keeping the property and not exposing it to market risk. The income is fixed less risky, so we don’t grant it preferential treatment.

34 Roger Sweeny February 21, 2014 at 1:16 pm

Perhaps this is a good time to put in a plug for Stuart Banner’s American Property. I didn’t like it as much as Alex did (by being all about changes in property law, it leaves the impression that there is no core of property) but Chapter 12, Owning Life, considers some of these issues.

35 Silas Barta February 21, 2014 at 2:27 pm

Hate to be the statist here, but it really should just be (higher taxed) labor income. If not, then I could argue that whenever I work, I’m just releasing the (long-term-stored) “motive force” inside my body, and thus am really selling goods and reaping a capital gain.

36 byomtov February 21, 2014 at 6:04 pm

Perez then challenged the IRS, contending that the payment was more like a settlement from a personal-injury lawsuit than business earnings.

This has to be one of the most ridiculous tax arguments ever. The woman wasn’t involuntarily damaged by someone. She agreed to undergo the procedure in exchange for $20K.

37 nike air max 95 March 13, 2014 at 4:32 am

BEIJING, Feb. 21 (Xinhua) — A Beijing-based Tibetology scholar has criticized the Dalai Lama’s Friday meeting with U.S. President Barack Obama in the White House, saying it was another “anti-China farce.” “Once again, the Dalai Lama slipped into the White House Map Room for a so-called ‘unofficial meeting’ with Obama. This was another farce against China,” said Lian Xiangmin, a researcher with the China Tibetology Research Center, in a signed article.

38 msgkings February 21, 2014 at 2:01 pm

‘…another commentor is apparently trying to comment in every single post…’

Unhappy with the competition?

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