Is Egg Donation Income Taxable? US Tax Court Says Yes

The US Tax Court has reached a decision in the groundbreaking tax case in which an egg donor, Nichelle Perez, argued that her egg donation compensation should be excluded her gross income and exempted from taxes owed. The outcome? Perez lost. Sierra Falter, attorney and founding member of We Are Egg Donors, weighs in on what this new ruling means for egg donors.

Enter Sierra.

On January 22, 2015, Judge Holmes held the fees paid to egg donors are taxable:

The court held “[c]ompensation for pain and suffering resulting from the consensual performance of a service contract is not “damages” under I.R.C. section 104(a)(2) and must be included in gross income.

Seeing as I’m a tax law nerd, I’ve pulled a few of my favorite and key parts of the court’s decision.

1. The court rejected Perez’s argument that her egg donation compensation was for her “pain and suffering.” 

In Perez, Judge Holmes only considered whether the compensation received from egg donation constituted “damages” under the Internal Revenue Code Section 104(a)(2). Specifically, whether Ms. Perez, who suffered physical pain or injury while performing a contract for personal services may exclude the amounts paid under the contract as ‘damages’ received.

The court also recognized Ms. Perez’s interests:

Perez very clearly has a legally recognized interest against bodily invasion. But we must hold that when she forgoes that interest–and consents to such intimate invasion for payment–any amount she receives must be included in her taxable income. Had the Donor Source or the clinic exceeded the scope of Perez’s consent, Perez may have a claim for damages. But the injury here, as painful as it was to Perez, was exactly within the scope of the medical procedures to which she contractually consented. Twice. (Opinion at 6-7) (emphasis added).

Underlying the court’s decision is its understanding of what exactly Ms. Perez consented to when agreeing to donate her eggs:

We completely believe Perez’s utterly sincere and credible testimony that the series of medical procedures that culminated in the retrieval of her eggs was painful and dangerous to her present and future health. But what matters is that she voluntarily signed a contract to be paid to endure them. This means that the money she received was not “damages”. (Opinion at 19-20) (emphasis added).

Basically, this means that the court acknowledged the dangers of voluntarily undergoing “painful and dangerous” procedures as an egg donor, but these health risks were clearly outlined, Perez consented to them, and thus, the money is not considered “damages” but payment for services rendered.

2. This ruling did not conclude that egg donors are “selling” eggs.

The court made clear it was not deciding whether human eggs are capital assets (see Opinion at 9) and issues related to the sale of body parts. Early on in the court’s decision, when discussing Ms. Perez’s contracts, Judge Holmes points out the interesting use of the word “donation”:

This is all called egg “donation”, but the term is a misnomer–the participant in the egg-stimulation and retrieval is compensated. (There are a small number of true donors–women who undergo the rigors of the process for an infertile relative or friend without compensation. This opinion isn’t about them.) (Opinion at 3-4) (emphasis added).

In rationalizing its decision, the court explained what harm would come if it were to rule in Ms. Perez’s favor. In doing so, Judge Holmes analogized egg donors to professional boxers, hockey players, and football players.

We see no limit on the mischief that ruling in Perez’s favor might cause: A professional boxer could argue that some part of the payments he received for his latest fight is excludable because they are payments for bruises, cuts, and nosebleeds. A hockey player could argue that a portion of his million-dollar salary is allocable to the chipped teeth he invariably suffers during his career. And the same would go for the brain injuries suffered by football players…. We don’t doubt that some portion of the compensation paid all these people reflects the risk that they will feel pain and suffering, but it’s a risk of pain and suffering that they agree to before they begin their work.And that makes it taxable compensation and not excludable damages. (See Opinion at 20).

3. Egg donors are likely to continue appealing their taxes owed on egg donation compensation.

Before this ruling, many egg donors in our group successfully appealed taxes owed, but this ruling undoubtedly sets a precedent on how egg donation income will be classified according to the IRS. However, despite the straightforward title of this blog post and the holding of the court, the decision is far from a cut and dry decision regarding all egg donation compensation.

However, there may be very little room for other donors to argue the compensation they received, perhaps under a differently worded contract or different circumstances, should be treated any differently than the compensation received by Ms. Perez. For example, some contracts egg donors sign explicitly state that payment is contingent on her “performance.” For example, if an egg donor produces less eggs, then she is paid less. There are also many egg donors who report never having signed a contract, or being refused a copy of their contract.

I encourage donors to read the entire decision to learn the court’s reasoning for its decision – including its discussion of the contracts entered into by Ms. Perez and background on U.S. Tax Law. Ultimately, the court concluded that Ms. Perez was compensated for services rendered according to her egg donation contract with the agency, and not for the sale of property (her eggs). Her contracts with the agency specified that her compensation was in exchange for her “good faith and compliance with the donor egg procedure.” In Perez’s case, she was to be paid regardless of the quantity or the quality of the eggs retrieved. (See Opinion at 10).  But this isn’t necessarily the case for everyone.


Attorney Dean Masserman acknowledged that questions remain unanswered:

Was the court suggesting that if the contracts were re-written and clearly stated that the compensation is for the sale of eggs that Perez would have won?

If language was added that compensation is dependent upon the quality and quantity of eggs retrieved would it make a difference? Would any egg donor agree to such terms?

Isn’t revenue from the sale of property and goods taxable anyway?

Does the sale of single-cell genomes fall within the exception regarding the sale of body parts?

Given the huge variability between how egg donor contracts are worded, these are legitimate points.

We Are Egg Donors is aware of donors whose compensation depended on the amount and quality of eggs retrieved. We’re also aware of donors who’ve suffered complications and long-term consequences that were not mentioned and they were not informed of when they began the donation process — when they signed their contracts. The risks of egg donation remain understudied; there have been zero long-term studies on the health effects of egg donation. Thus, there are far more complications and long-term consequences to consider, even more concerning than the bloating, headaches, weight gain, and ovarian hyper-stimulation that egg donors consent to as potential short-term risks.

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Are you an egg donor with questions? The members of We Are Egg Donors are holding in-depth discussions regarding the recent decision and its implications on their past and future donations. In-depth is an understatement! To join in, donors can follow these instructions.  

For those donors wanting to gain more insight on the sale of human-body parts can also read these law review articles cited by the court: ”What Are We—Laborers, Factories, or Spare Parts? The Tax Treatment of Transfers of Human Body Materials” by Lisa Milot and “Our Bodies, Our (Tax) Selves,” by Bridget Crawford.


We Are Egg Donors joins Judge Holmes in thanking Richard A. Carpenter, Jody N. Swan, and Kevan P. McLaughlin for representing Ms. Perez pro bono. Your work did not go unnoticed.

This communication does not create the attorney-client relationship. This communication constitutes general legal advice and information directed to the public at large. This communication also does not constitute tax advice. Donors are encouraged to consult an attorney and/or tax professional regarding the facts specific to your case in your jurisdiction. 

Photo credit: Shandi-lee Cox via Flickr Creative Commons


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