Originally published on Forbes.com.
Kathryn Pratt’s recent article in the Michigan Journal of Gender and Law – The Tax Definition of “Medical Care:” A Critique of the Startling IRS Arguments in O’Donnabhain V. Commissioner – includes a cautionary tale of what can happen when cultural warriors use political influence to mess with tax administration. Another cautionary tale buried in there is what can happen when your case becomes a cause.
What’s It All About?
The O’Donnabhain case is about the deductibility of gender confirmation surgery. GCS is also referred to as sex reassignment surgery and back in the day was called a sex change operation. Here is a discussion of the problem of naming by Loren Schechter, a board certified plastic surgeon. When you can’t name something without seeming to take a stand, you know that you are dealing with a controversial topic.
To become an IRS agent you need to have a bachelor’s degree with at least thirty hours in accounting. Really not the ideal preparation for being somebody who will ponder questions like whether GCS is “cosmetic”. That was the technical problem. I suspect that Ms. O’Donnabhian caught the Agent From Hell. To AFH a decision like this is easy. When it comes to a deduction, when in doubt, deny it.
When Your Case Becomes A Cause
Ms. O’Donnabhain was able to get some first class representation. GLBTQ Legal Advocates and Defenders (GLAD). a Boston-based not for profit would go on to win some of the important cases that overturned the Defense of Marriage Act. GLAD managed to get IRS Appeals to see reason. Accepting Professor Pratt’s narrative, they then made a move that did not serve their client that well.
In November of 2004, GLAD issued a press release about an anticipated resolution of the appeal in favor of O’Donnabhain. (The IRS appeal still was pending at the time GLAD issued the press release. The GLAD attorneys apparently understood that the Appeals Officer would allow the deduction, but the IRS later reversed course and denied O’Donnabhain the deduction.) In the press release, GLAD attorney Karen Loewy stated that the IRS Appeals Officer’s decision to allow O’Donnabhain the medical expense deduction “recognizes that sex reassignment can be as medically necessary for some people as an appendectomy or heart bypass surgery.”
The GLAD press release triggered a reaction from the Traditional Values Coalition.
But Traditional Values Coalition Chairman Rev. Louis P. Sheldon wants the decision reversed, saying it sent the wrong message to those who suffer from a Gender Identity Disorder that a sex-reassignment surgery can cure their mental condition.
“On behalf of the 43,000 churches that are associated with the Traditional Values Coalition, I am urging Mr. Everson to reverse this decision,” said Sheldon on Tuesday.
He also said the IRS should not allow itself to become a pawn in the hands of the homosexual/transgender movement.
I’m more of a tax practitioner than an activist. So I’m thinking that GLAD should have held off on its press release until appeals had actually signed off or, to be extra safe, the statute had run on the 2001. They could have then put out a redacted copy of the final report and the IRS would not have been able to talk about it. Instead they stirred up controversy, which, from an activist perspective might have been the best course. Presumably, they had Ms. O’Donnabhain’s buy-in. Also the dollar stakes were not that high. Just over $5,000.
Who Is In Charge?
Remember this is the second Bush Administration. In 2002, Dr. Paul McHugh was serving as a member of the President’s Council on Bioethics. Dr. McHugh is a psychiatrist. Dr. McHugh believes that GCS is a bad idea, a really bad idea. In 2015, he wrote Transgenderism: A Pathogenic Meme
In fact, gender dysphoria—the official psychiatric term for feeling oneself to be of the opposite sex—belongs in the family of similarly disordered assumptions about the body, such as anorexia nervosa and body dysmorphic disorder. Its treatment should not be directed at the body as with surgery and hormones any more than one treats obesity-fearing anorexic patients with liposuction. The treatment should strive to correct the false, problematic nature of the assumption and to resolve the psychosocial conflicts provoking it. With youngsters, this is best done in family therapy.
When Boston IRS went up the ladder for guidance what came down from the Office of Chief Counsel in the form of CCA 200603025 was the thinking of Dr. McHugh.
Whether gender reassignment surgery is a treatment for an illness or disease is controversial. For instance, Johns Hopkins Hospital has closed its gender reassignment clinic and ceased performing these operations. See, Surgical Sex, Dr. Paul McHugh, 2004 First Things 147 (November 2004) 34-38.
This is the “startling IRS argument” that Professor Pratt is referring to.
The Startling Argument
The overarching problem with the IRS approach to this case is that accountants and lawyers are not going to be able to sort out which group of doctors to believe when there is controversy about whether a procedure is a good idea or not. Professor Pratt in this case argues that what was going on was a covert attack on the trans community rather than sound tax administration.
The hyper-technical tax arguments made by the IRS in the O’Donnabhain case are objectionable for several reasons. First, the arguments would have radically altered the medical expense deduction, producing uncertain and arbitrary outcomes. Second, the IRS appears to have singled out a transgender taxpayer for unfair and dehumanizing treatment—violating its mission statement in the process—by treating O’Donnabhain like a deceiver and criminal and by making implausible tax arguments that were “a mask for the politics of disgust.”19 Third, the IRS’s overt technical arguments for denying the deduction (based on the IRS’s covert moral objections to the medical procedures involved in the case) could serve as a blueprint for the future denial of deductions for other medical expenses on covert moral grounds.
How It Turned Out
The IRS lost badly in Tax Court. a decision I covered in the very dawn of my blogging career. In a pretty unusual move, the IRS signaled its acquiescence in the decision. Of course, that was during the Obama administration. All in, the Traditional Values Coalition arguably shot itself in the foot by pressuring the IRS to take on this fight. The whole matter along with the fight over DOMA was the inspiration for Reilly’s First Law of Tax Policy – Make tax policy the Switzerland of the culture war.
President Trump has gone on record on trans issues by indicating that Caitlyn Jenner can use whatever bathroom she feels most comfortable within Trump’s properties. So perhaps there will not be another shift with the new administration.
Other Comments
Professor Pratt’s article, to which I fear I have not done full justice, has not attracted a lot of attention other than a mention in Paul Caron’s TaxProf Blog, so I sought out some comments and heard back from two people with some credentials as transactivists.
Comedian Julia Scotti wrote me:
Until the classification for Gender Dysphoria is changed from a psychological disorder to a medical one, those who choose to undergo Gender Reassignment Surgery will have to continually justify themselves and their credibility. There is enough medical evidence to support changing the classification, but it benefits insurance companies to deny the claim. It gives credence to those who believe that Transgendered folks are somehow “not right” mentally.
Health insurers will cover hormone replacement therapy, and the psychological visits needed for final approval for surgery. They will take it right to the edge but deny those whose lives would be made better by having it the chance to live full, happy and productive lives. It makes no sense at all.
Toni D’Orsay, Executive Director of the Trans 100 wrote me at some length. Here are the high points:
This case represents an excellent opportunity to examine the ways in which those who are opposed to the rights of Trans people — and, by extension, gay, lesbian, and bisexual people — operate in a setting of law, where their exhortations towards public defamation are much more limited by the demands of law.
The case is one that will likely be made into a “lifetime” movie one day — fictionalized, no doubt, but the basics of the story are quite compelling and the way that things happened is very dramatic.
The most important aspect of the case, however, has nothing to do with trans persons directly — it lies in the impact to persons who are not trans as a direct result of the way this case was argued. Had the trans woman lost, it would have significantly altered the way that other people were able to make claims for simple, routine exemptions that they had been getting all along, and given rise to an even greater challenge down the road in order to “restore” that basis. Trans people, despite their being different, are still people. When you attack them, you invariably attack people who are not trans people, because of this simple truth.