In a recent private letter ruling (PLR 202505002, dated January 31, 2025), the IRS clarified that in vitro fertilization (IVF) expenses associated with a surrogate for a married couple are not deductible as medical expenses under current tax regulations. While a private letter ruling applies only to the taxpayer involved, this ruling suggests how the IRS is likely to approach similar cases in the future.
Historically, the IRS has allowed heterosexual couples to deduct IVF expenses as medical costs. However, it has typically disallowed such deductions for all-male couples seeking surrogacy. There remains significant uncertainty regarding how these expenses are treated in various situations.
IRS Medical Expense Guidelines
According to IRS Publication 502, medical expenses are costs incurred for the diagnosis, treatment, or prevention of disease or conditions. These include payments for medical services rendered by licensed practitioners, as well as for necessary medical equipment, supplies, and diagnostic tools. The expenses must be primarily aimed at alleviating or preventing a physical or mental health issue; items that simply improve general health, like vitamins or recreational activities, do not qualify.
Deductions are allowed only for the portion of expenses that exceeds 7.5% of the taxpayer’s adjusted gross income (AGI). For example, if a taxpayer has an AGI of $100,000 and $8,000 in qualified medical expenses, they can only deduct $500.
Case Details
In this particular case, the taxpayers—a legally married heterosexual couple—had been unable to conceive due to the wife’s medical condition. To have a child, they turned to IVF using the husband’s sperm and a donated egg, with a gestational surrogate carrying the pregnancy.
The couple sought IRS guidance on whether they could deduct various expenses, including:
- Medical expenses for both spouses
- Egg donor costs
- Medical expenses related to sperm donation
- Sperm freezing
- IVF medical costs (including embryo creation and storage)
- Surrogacy-related childbirth expenses
- Surrogate medical insurance
- Legal and agency fees associated with the surrogacy process
IRS Ruling and Reasoning
The IRS ultimately denied deductions for most of the costs associated with the IVF and surrogacy process. In its ruling, the IRS referenced past cases where it denied similar deductions, particularly when the medical technology, such as IVF, was not directly used by the taxpayer or their dependent.
In this case, the IRS emphasized that the procedures in question were aimed at facilitating pregnancy in a third party (the surrogate), not at treating a medical condition in the couple themselves. As a result, only direct medical expenses incurred by the couple—such as those for sperm donation—were considered deductible.
Looking Ahead
While the IRS ruling sets a precedent, the tax laws surrounding reproductive technology, including IVF and surrogacy, are still evolving. With advancements in medical science and family planning options, taxpayers and tax professionals should remain vigilant for future updates and changes in the law.
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