As tax professionals, we frequently encounter complex medical expense deduction questions under IRC Section 213. IRS Determination Letter 202518023 provides valuable insight into the Service’s position on the deductibility of costs associated with in vitro fertilization (IVF) and gestational surrogacy. This analysis will dissect the facts presented, the taxpayers’ request, the IRS’s legal framework, its application of the law, and the final determination.

Facts of the Request

The request involved a heterosexual married couple, identified as Taxpayer A and Taxpayer B. Taxpayer A had a pre-existing health condition that posed a high risk of uterine rupture if they were to carry a pregnancy to term. Consequently, the couple engaged the services of a gestational carrier to carry their biological child to term. The couple incurred expenses for both the IVF procedure, utilizing Taxpayer A’s eggs and Taxpayer B’s sperm, and for the gestational surrogacy during Years 1, 2, and 3.

For Years 1 and 2, the couple filed joint federal income tax returns but did not claim a deduction for these expenses because they were awaiting a determination from the IRS. They had not yet filed their return for Year 3 at the time of the request. They represented that they would file, or had already filed, a joint Form 1040 for each of the three years.

Taxpayers’ Request

Taxpayer A and Taxpayer B submitted a request for a determination letter to the IRS District Director. They specifically sought a determination on the deductibility of their unreimbursed expenses for IVF and gestational surrogacy as medical expenses under IRC Section 213. Their request acknowledged that any allowable deduction would be subject to the threshold requiring such expenses to exceed 7.5% of their adjusted gross income for each relevant year.

IRS’s Analysis of the Law

The IRS analysis centers on IRC Section 213 and the definition of "medical care" contained therein.

Allowance of Deduction: The fundamental basis for the deduction is found in IRC Section 213(a). The letter quotes the pertinent part: "[t]here shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent ... to the extent that such expenses exceed 7 .5 percent of adjusted gross income.".
Definition of Medical Care: The crucial element in determining deductibility is whether the expenses constitute "medical care." The IRS cites IRC Section 213(d)(1)(A) for this definition. The letter states: "IRC Section 213(d)(l)(A) provides that the term, ’medical care,’ means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.". The IRS notes that the deduction is available only for medical care of the taxpayer, spouse, or a dependent.

Application of the Law to the Facts

The IRS applied the definitions from IRC Section 213(d)(1)(A) to the specific expenses incurred by Taxpayer A and Taxpayer B.

Regarding the IVF procedures, the IRS determined that certain expenses qualified as medical care. Specifically, they concluded that the egg and sperm retrieval procedures "affect the structures of your bodies". This falls squarely within the "for the purpose of affecting any structure or function of the body" prong of the IRC Section 213(d)(1)(A) definition of medical care.
Regarding the gestational surrogacy expenses, the IRS’s analysis focused on for whose medical care the expenses were incurred. The IRS determined that the expenses related to the gestational carrier were not incurred for the medical care of Taxpayer A, Taxpayer B, or a dependent. Since IRC Section 213(a) limits the deduction to expenses for the taxpayer, spouse, or a dependent, these expenses for a third-party gestational carrier were deemed nondeductible.

IRS Decision

Based on its analysis, the IRS arrived at a bifurcated determination:

Approval of IVF Expenses: The IRS approved a deduction under IRC Section 213 for specific medical expenses related to the IVF procedures. These deductible expenses include:
- Screenings
- Fertility medication and treatment
- Egg and sperm retrieval
This approval is contingent upon certain conditions for each tax year the deduction is sought: (1) the medical expenses must exceed 7.5% of adjusted gross income; (2) Taxpayer A and Taxpayer B must be married to each other at the end of the taxable year; and (3) they must file an amended joint Form 1040 for Years 1 and 2, and an original joint Form 1040 for Year 3, to claim the deduction. The IRS explicitly stated that the expenses for egg and sperm retrieval affect body structures, making them deductible medical care.
Denial of Gestational Surrogacy Expenses: The IRS denied a deduction under IRC Section 213 for any expenses incurred related to the gestational surrogacy. The letter provides a non-exhaustive list of these denied expenses, including:
- Pre-transfer testing costs for the gestational carrier
- Medications and procedure costs for embryo transfers (related to the carrier)
- Embryo transfer fees reimbursing the carrier for pain and suffering
- Embryo storage fees
- Deductibles and co-pays for the carrier’s health insurance
- Costs for life and accidental death and dismemberment policies on the carrier’s life
- The cost for the delivery of the child by the carrier
- Legal fees to establish parentage
- Base reimbursements to the carrier for care, support of the fetus, discomfort, pain, suffering, inconvenience, and pre/post-pregnancy expenses
The IRS explicitly stated that expenses "directly for the identification, compensation, and medical care of a gestational carrier" and reimbursement of the carrier’s related expenses are not deductible because they were not incurred for the medical care of the taxpayer, spouse, or a dependent as required by IRC Section 213(a).

Conclusion for Tax Professionals

IRS Determination Letter 202518023 clarifies the Service’s position that while certain costs directly related to IVF procedures performed on the taxpayer or spouse (like retrieval, medication, and treatment) may qualify as deductible medical expenses under IRC §213, expenses paid for or reimbursed to a gestational carrier do not. The key distinction lies in who is receiving the medical care – the taxpayer/spouse/dependent versus a third party.

Practitioners advising clients on similar situations should note that this is a determination letter directed specifically to the requesting taxpayers and cannot be used or cited as precedent. However, it clearly illustrates the IRS’s interpretative framework for applying IRC Section 213 to complex fertility treatments involving third parties. CPAs should continue to analyze the specific facts and circumstances of each client’s situation and ensure adequate documentation is maintained to substantiate any claimed medical expense deductions.

Prepared with the assistance of NoteBookLM.