The US Tax Court recently concluded that amounts received by a donor represented taxable compensation income. That conclusion would seem to indicate that the years of debate within our industry regarding taxability of donor compensation are now at an end.
In the case decided by the Tax Court (Perez v. Commissioner), the donor was paid $20,000 for two cycles of egg donation. The contract between the egg donor and the intended parent read that payment was “in consideration for all of her pain, suffering, time, inconveniences, and efforts”. Donor Perez did not report the $20,000 as income on her tax returns on premise that she was receiving compensation for physical injuries, a general non taxable event. [It should be noted that The Donor Source of Fertility Source Companies did issue 1099 forms to donor Perez for both donations.]
The Tax Court decided that compensation for physical injuries (damages) had to be as a result of a legal suit or related settlement in order to be non taxable. This was not the case for the funds received by the egg donor. Consequently, the income was taxable to the donor. Though seemingly not discussed in the Tax Court decision, it would seem that a corollary to the decision is that 1099s should be issued to egg donors for their compensation.
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