UPDATE: Soon, the mystery surrounding unwelcome 1099s will be clarified, if not disappear. The U.S. Tax Court recently heard an egg donor’s appeal to the IRS in Perez v. Commissioner of Internal Revenue. Read the post: Gamechanging Court Case: Another Egg Donor Appealed Taxes Owed.
Raquel here, kicking off the new series of interviews we’re doing with fellow egg donors around the world. Elizabeth* is an American egg donor who provided her eggs eight times. As you probably know, the US has no legal limit on how many times we can donate, or how how much we’re paid.
Elizabeth was what is called a “premier” egg donor: she was paid $15,000 per cycle. Due to the subsequent health issues she experienced, she was able to successfully appeal all taxes on her compensation. In this interview, I ask her about what it’s like being a high-demand donor, what her body has gone through, and for advice she has for egg donors.
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Tell us about your egg donation experience in a nutshell.
The point of egg donation that intrigued me the most when I began, at the age of 21, was the notion of helping a people achieve their dreams of building a family. I also have many gay friends who are unable to be parents without assistance due to their sexual orientation and assisting gay couples was a priority for me. Then you have the compensation that is also enticing; especially for a woman in the age group (21 to mid-twenties) who is most sought after in egg donation.
When I began I knew there were risks but I can honestly say I was not diligent enough in my research to realize the possible unknowns. A commonly prescribed drug during egg cycles is Lupron and it essentially puts a woman into an artificial menopause.
This drug has been linked with bone density loss, mood disorders, general pain, and hormone regulation issues. For instance, DiVasta, Laufer, and Gorden (2007) found that almost one third of the subjects between the ages of 13-21 who were previously treated with a GnRH Agonist (Lupron) showed spinal deficits.
Although I am only 28, I already have moderate spinal degeneration and mild scoliosis.
The more immediate effects of egg donation include the possibilities of emotional disturbances, injection site infection and bruising, ovarian hyperstimuation syndrome (OHSS), and more. Additionally, the actual process of removing the eggs is an invasive surgery which can cause many complications.
How many times did you donate your eggs? Did you pay taxes for each time?
I donated my eggs 8 times. This is two times over the ASRM guidelines capping donations at 6 times per donor. Mainly, this guideline exists because the ASRM wants to limit the scope of genetics from a single donor in the population.
(Interviewer’s note: From the NYT: “Although other countries, including Britain, France and Sweden, limit how many children a sperm donor can father, there is no such limit in the United States. There are only guidelines issued by the American Society for Reproductive Medicine, a professional group that recommends restricting conceptions by individual donors to 25 births per population of 800,000.”)
I did donate for 6 different families. The extra 2 donations were from additional cycles completed for the same families I had donated to previously. A family may choose to have a woman donate for them more than once so that frozen embryos can be stored for future use.
I was not 1099d from every donor agency that I had used, but was notified by the IRS that I owed taxes for at least 5 of the cycles. I appealed the assessments immediately so I have not paid any tax on my cycles.
What are some lessons learned that all egg donors can benefit from?
Research, research, research! Have a full understanding of the potential health risks that you are undertaking when you agree to donate your eggs.
Look at your contract, make sure that your contract includes the fact that you are being compensated for health related impacts and injury (e.g. pain and suffering) in addition to any other compensation you are set to receive on account of economic loss (e.g. missed days at work).
What is the compensation for, in your opinion? I was told that it was for “time, effort, and risk” but not for my eggs, yet studies have shown that egg donors are often paid according to her desirability.
So-called “premier” donors are often paid in excess of $15,000 a cycle. I was labeled as a premiere donor partly because my cycles were so successful.
My first cycle resulted in 32 viable embryos and every cycle I completed resulted in at least one pregnancy (most frequently twins).
While research has found donor pay differs based on desirability the legal aspect remains the same: donors are never paid for their eggs because it is illegal to sell human body parts. We are paid for time, effort, physical and emotional injury, potential health risks, and more. If you think about it, it is hard to even put a price on those factors which is exactly why I am fighting the notion of taxing egg donor compensation. We are not products!
When did you start getting paid $15,000 per cycle?
I was called a premier donor and the costs to secure a cycle with me were scaled differently. I started being offered over $10k after the first 3 cycles. I never demanded a certain amount, I believe that more than one couple would try to book a cycle in w/me and that led to an increase in cost. However, I took on a known donation for thousands less than I was compensated for at the time because she was having a hard time paying for fertility treatments (42 y.o. single woman).
How can egg donors be proactive about the taxes due?
Make sure that your contract clearly outlines the facts that you are being compensated for physical injury, in consideration of future medical complications, and emotional suffering in addition to any economic losses endured. However, be aware that this may limit the future liability of the other parties in the contract. Keep it in mind that egg donation contracts will almost always include clauses that release the other parties from future liability similar to any personal injury settlement.
Be proactive with the IRS! If you have 1099 income that you think should be excluded from tax take the steps to draft a comprehensive appeal for reconsideration. The IRS will not know what the 1099-MISC income was for unless you tell them. For all they know you could have been a contracted real estate agent.
What was the process for appealing the IRS? How long did the process take?
I appealed after I received a notice that I owed money for my cycles. I am still in the process because you have to go through every 1040 and appeal them separately (even within the same year). I have had 3 1040s excluded.
Should the compensation donors receive for these risks and procedures be taxed?
That was my question after I received a notification from the IRS that I had been ‘1099d’ for my cycles. My research and experiences leads me to believe that my previous egg donation compensation should be excluded from taxable income.
What made you pursue the appeal? Did you have any help? If so, how did you find them and how much did it cost?
I pursued the appeal because I felt that it was unethical to tax an occurrence that could impact my health. I did not have any help but did spend quite a bit of time drafting letters and making phone calls to the IRS.
Should egg donors pay taxes?
Yes and no. The only portion of egg donation compensation that should be taxable is the monies received on account of economic loss. Asides from all of the points I raised above regarding health impacts the IRC clearly states:
If an action has its origin in a physical injury or physical sickness, then all damages (other than punitive) that flow therefrom are treated as payments received on account of physical injury or physical sickness whether or not the recipient of the damages is the injured party. [These] damages…are excludable from gross income [i.e., non-taxable]. [T]he exclusion from gross income under IRC section 104(a)(2) also applies to any compensatory damages received based on a claim of emotional distress or mental/emotional injury that is attributable to a physical injury or physical sickness…the amount of any damages (other than punitive) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.
There is no clearly defined code that addresses the matter of egg donation compensation. My assumption is that because the sale of human body parts is illegal we are not “selling eggs”. Correspondingly, donors are paid, at least in part, on account of physical distress (e.g. surgeries, hormonal disturbances). Furthermore, there is no way to give a precise estimate as to the injury a donor may endure over her lifetime because a prior egg donation.
What resources do you recommend for egg donors faced with tax questions?
Taxation law is complex. I am in no way attempting to tell donors that they should not claim income received from egg donation. I just want to offer objective evidence that portions of compensation received may, in fact, be excludable from federal income tax under the current IRC codes regardless of whether an agency issues a 1099 or not. When I appealed the 1099s that were issued to me, I won.
I recommend that donors consult with the lawyers who draft their contracts in addition to the IRS. Note that most IRS caseworkers you will speak with will not know whether your compensation is taxable or not. You must be prepared to write letters and possibly even include published studies that detail aspects of the egg donation process. Always quote the IRC codes when you call or write the IRS which can be found here.
Would you be willing to share examples of your letter to the IRS?
The letter below shouldn’t be looked at as a template because it is reflective of my personal situation. However, any woman disputing a 1099 should include scholarly research, any physical distress caused (e.g. bruising, pain after surgery, etc), a copy of the contract portion that states how much the compensation was and why it was awarded, and the IRC codes relevant to the topic.
Here is what I sent:
Letter Sent to the IRS
To Whom It Concerns:
I am writing in response to a 1099 that had been sent in by XXXXXX (omitted), which reported that I received XXXXX in 2008 as taxable income. I was an egg [oocyte] donor through the agency XXXX. I went through physical and emotional distress because I had to self-inject numerous medications [including but not limited to Lupron, HcG, Follistim], ending in invasive surgery for the final egg retrieval.
In more than one cycle I had developed ovarian hyperstimulation [Ovarian hyperstimulation syndrome is particularly associated with injection of a hormone called human chorionic gonadotropin (hCG) which is used for inducing final oocyte maturation and/or triggering oocyte release], which causes intense pain and can also be very dangerous. Furthermore, I am including a portion of a contract for an egg donation cycle that states I was awarded compensation for pain and suffering [see: contract pages 8-9]. I was unemployed and a stay at home mother at the time of my egg donation cycles from 2008 onward, so I did not receive any compensation for income losses.
In fact, I am still suffering side effects from the processes of prior egg donations, which includes hormonal irregularities, bone density loss [including spine degeneration at 28 y.o.], and ovarian cysts. Please see attached research from the University Of New Hampshire detailing the medical risks of egg donation: “In a report submitted by TAP Pharmaceuticals to the FDA in April 1998, researchers wrote that they were “concerned’’ because more than one-third of the women they studied who took Lupron did not “demonstrate either partial reversibility’’ or “a trend toward return’’ of bone mass in the six months after they stopped taking the drug” (Norsigian 2005 p. 2).
If you need further information about what was recorded through the 1099-MISC, you are more than welcome to contact XXXXX (the issuer of the 1099 I am disputing). They may be able to release information I am incapable of providing due to privacy issues. Egg donation was, and still is, a fairly new concept and the suffering a donor endures has been widely reported. Many of us are not told of the complications and risks prior to the procedures. The long-term medical consequences can cost far more than any “pain and suffering” compensation paid to induce a young woman to submit themselves to these procedures. This agreement is no different than any other pain and suffering compensation intended to pay medical damages to a party for current or future consideration. Please see attached research by Steinbock (2004) from the Mount Sinai Journal of Medicine regarding donor compensation, “…donors…compensated for the burdens of egg retrieval.”
In the United States of America it is illegal to pay for or sell genetic material thus donors are not paid for eggs; we are compensated for various damages including but not limited to physical injury. This is quite different from being employed or contracted for work. Egg donation is not a job or the sale of goods. From the irs.gov site it is stated that: In 1996, IRC § 104 (a) (2) was amended to exclude gross income “the amount of any damages…received whether by suit or agreement and whether as lump sums or as periodic payments on account of physical injuries or physical sickness.” This indeed is a case of compensation on account of both of those variables.
I hope that the information I have included satisfies a reconsideration of what is to be considered “taxable income” from the year 2008 via egg donation cycles I completed.
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