Tax Issues Affecting Transgender Individuals

Transgender individuals experience unique tax challenges because of their gender identity. For example, in O’Donnabhain v. IRS Commissioner, the United States Tax Court determined whether a taxpayer diagnosed with gender identity disorder could deduct hormone therapy, sex reassignment surgery, and breast augmentation surgery as medical care pursuant to 26 U.S. Code ยง 213. The court held that while hormone therapy and sex reassignment surgery are deductible, breast augmentation is not deductible because it is cosmetic rather than medically necessary surgery. The case garnered media attention and commentary from the medical community after the IRS failed to recognize medical literature indicating that transgender identity is a medical condition. Read the full decision here.

In addition, the Department of Health and Human Services ruled that the National Coverage Determination can no longer validly deny Medicare coverage for transsexual surgery. Read the full decision here.