Sex Change, Breast Augmentation and the Tax Law

Not sure where this titillating bit of info should go (if it should go anywhere), so the mods can feel free to remove or relocate as they deem appropriate. Anyway....

The Tax Court recently held that "an individual could deduct as a medical care expense under Code Sec. 213 amounts paid for hormone therapy and sex reassignment surgery that were incurred in connection with a condition known as gender identity disorder, which the Tax Court found to be a disease. However, it found that breast augmentation surgery that the individual also had in connection with the disorder was cosmetic surgery and amounts paid for it were not deductible under Code Sec. 213(d)(9)."

Which, to me, also raises the question of whether a provider can deduct the cost of breast augmentation as a "reasonable and necessary" business expense, or whether such expense is just a non-deductible cosmetic surgery expense.

I thought I read that strippers and porn actors were able to deduct their medical expenses for implants. Not 100% sure but I've heard it several times.

Not sure where this titillating bit of info should go (if it should go anywhere), so the mods can feel free to remove or relocate as they deem appropriate. Anyway....

The Tax Court recently held that "an individual could deduct as a medical care expense under Code Sec. 213 amounts paid for hormone therapy and sex reassignment surgery that were incurred in connection with a condition known as gender identity disorder (GID), which the Tax Court found to be a disease. However, it found that breast augmentation surgery that the individual also had in connection with the disorder was cosmetic surgery and amounts paid for it were not deductible under Code Sec. 213(d)(9)."

Which, to me, also raises the question of whether a provider can deduct the cost of breast augmentation as a "reasonable and necessary" business expense, or whether such expense is just a non-deductible cosmetic surgery expense. Originally Posted by notdeadyet

Some were just GIDdie about the ruling while others were stunned.

Unfortunately, I think "reasonable and necessary" is in the eye of the beholder, not the provider. I think what pornodave is referring to is the cost of unusual business clothing required for the job.

Ask a CPA. I'm sure that they can tell you. My first concern would be that the law may be that you can only take a deduction for a lawful activity. Prostitution isn't lawful. Therefore you would give the IRS a financial incentive to look into whether you were a escort or a prostitute. And you might even bear the burden of proof on that. Plus, you also open up the issue of whether you have reported all of your income, etc.

However, if you are a dancer (and can prove it), and you report all of your income, I would urge you to contact a CPA and have him or her do a bit of looking. It may (or may not) be deductible.

There has been at least one case where an exotic dancer was allowed to deduct the cost of implants, but that doesn't necessarily mean that it's settled law. This would almost certainly be a "facts and circumstances"-type of determination. Even if a court would allow it, you might have to GO to court if you can't convince the auditors or the IRS internal Appeals function, and going to court may be time-consuming and, if you don't do it pro se, expensive.

Of course, there's also no certainty that the IRS would even audit you.

It sounds like it would be subject to the "Housewife Test" meaning: Are the implants the type that a housewife would likely get?

I know things like health club memberships, lingerie, manicures and all of this other stuff escorts would like to deduct, are NOT decuctible because they fail the "Housewife Test". i.e. they're things a housewife could spend money on.

This test was formerly known as the "Dinah Shore Rule" back when people knew who Dinah Shore was The IRS challenged her deduction of several evening gowns. She went to court and won!

Her case hinged on the fact that her gowns were so tight she couldn't sit down. Obviously they were only suitable to standing up and singing and couldn't be used in normal life.

The Tax Court denied a Florida lawyer's $100k medical deduction for prostitutes and porn which the lawyer claimed was for purposes of sex therapy. The fact that prostitution was illegal was prominently cited by the court as a reason for disallowing the deduction.

See Halby v. Commissioner.

Similar reasoning would suggest that a business deduction for breast augmentation would be disallowed for providers that practice their profession in jurisdictions where such professional transactions are illegal. What would be the result for a Nevada provider working in a legal brothel?