Tax Court Rules on Medical Necessities

By Lynn Comer Jones, Ph.D., CPA

Since the 1990 enactment of Sec. 213(d)(9), 1 which stipulates that expenses for cosmetic surgery are not deductible, the IRS has subjected medical expense deductions to increased scrutiny. Nonetheless, over the past decade the definition of “deductible medical expenses” has expanded to include breast reconstruction subsequent to mastectomy (cancer); laser eye surgery (myopia); nonprescription medical supplies; and expenses for obtaining an egg donor (infertility treatment). 2 In O’Donnabhain 3 the Tax Court has expanded the list of deductible medical expenses to include hormone therapy and sex reassignment expenses for the treatment of gender identity disorder (GID).

On her 2001 tax return, Rhiannon G. O’Donnabhain claimed itemized medical deductions for GID treatment. The IRS denied the deductions in January 2006 via a statutory notice of deficiency, and the taxpayer petitioned the Tax Court in March 2006. 4 Nearly four years later, on February 2, 2010, the Tax Court ruled in favor of O’Donnabhain. The 90-day appeal period passed without an appeal by the IRS.


O’Donnabhain was born a male; however, from an early age she experienced discomfort with her gender identity and had a history of secretly wearing women’s clothing. As an adult, she earned an engineering degree, served in the U.S. Coast Guard, was married, and fathered children. 5 In 1996, she consulted psychotherapist Diane Ellaborn, a specialist in the diagnosis and treatment of gender-related disorders. After approximately 20 sessions, Ellaborn diagnosed O’Donnabhain with gender identity disorder (GID). GID is listed in the Diagnostic and Statistical Manual of Mental Disorders 6 (DSM-IV-TR); its severity is ranked as mild, moderate, or severe. A regimen of treatment for the disorder has been documented since 1979 in the Benjamin standards of care, a widely accepted medical protocol. 7

Ellaborn determined that the taxpayer suffered from severe GID and prescribed a three-step treatment plan recommended by the Benjamin standards: hormonal sex reassignment (hormone therapy requires one psychotherapist recommendation); real-life experience (living as the opposite gender for at least 12 months); and sex reassignment surgery (subsequent to the real-life experience; requires two psychotherapist recommendations).

Under the treatment plan, O’Donnabhain received feminizing hormones from 1997 to 2001 and initiated the real-life experience in 2000. In July 2001, Ellaborn and a second psychotherapist recommended gender reassignment surgery. 8 O’Donnabhain completed sex reassignment surgery (including breast augmentation) in October 2001 and claimed a $21,741 itemized deduction for the unreimbursed GID medical care expenses.

Issue and Law

At issue was whether O’Donnabhain’s expenses for hormone therapy, sex reassignment surgery, and breast augmentation surgery were deductible medical expenses. The Tax Court analyzed Sec. 213 and the related regulation regarding medical care expenses. Specifically, it distinguished medically necessary procedures versus cosmetic procedures, focusing on the definition of a disease and its related treatment.

Taxpayers are allowed an itemized deduction for uncompensated medical care expenses that exceed 7.5% of adjusted gross income. 9 Medical care expenses include the diagnosis, cure, mitigation, treatment, or prevention of disease or expenses incurred for affecting any structure or function of the body. 10 The expenses must be primarily for the prevention or alleviation of a physical or mental defect or illness. 11

In 1990, Sec. 213 was amended to exclude cosmetic surgery from the medical care definition. 12 Cosmetic surgery merely improves appearance; it does not promote proper body function or prevent or treat illness or disease. 13 However, cosmetic surgery expenses are allowed if the procedure is necessary to improve a deformity due to a congenital abnormality, personal injury (via accident or trauma), or disfiguring disease. 14

Expert Witness Testimony

The taxpayer’s expert witness was Dr. George R. Brown, a licensed, board-certified adult psychiatrist who has published articles and book chapters on GID topics and has seen nearly 500 GID patients in clinical and academic settings. 15 Brown asserted that “GID is a legitimate mental disorder” (recognized in DSM-IV-TR) but that “there are no biological or laboratory tests that may be used” for diagnosis—as is the case for most other mental disorders per DSM-IV-TR. According to Brown, GID treatment includes psychotherapy and at least one of the three steps in the Benjamin standards of care (emphasizing psychotherapy alone has not been documented as an effective treatment for severe GID). Brown testified that sex reassignment surgery is generally medically necessary to treat severe GID, that the surgery is not cosmetic (i.e., not done to improve appearance), and that “positive therapeutic outcomes” have been documented in the scientific literature. He agreed that O’Donnabhain’s GID diagnosis and treatment (including sex reassignment surgery) were appropriate and medically necessary.

The IRS used two expert witnesses, Dr. Chester W. Schmidt and Dr. Park Dietz. Schmidt is a licensed, board-certified adult psychiatrist and an academic. The court noted that he had not been listed as an author of GID research (journal articles or book chapters), nor had he directly treated GID patients since the mid-1980s; however, the court commented that “he has been active in the clinical and teaching aspects of transsexualism.” 16

Schmidt testified that he was uncertain whether GID is a mental disorder on the basis of GID patient heterogeneity (presentation, personality, and motivation) and lack of scientifically supported etiology (i.e., cause and origin). Similarly, he maintained that there was “no conclusive scientific proof that GID is the result of a genetic or congenital abnormality.” Even though Schmidt was unaware of any professional disagreement with the Benjamin standards of care, except for those who consider sex reassignment unethical, he claimed that those standards were merely guidelines. Nonetheless, he agreed with the standards’ treatment protocol, except that psychotherapy should be mandatory (rather than optional) for sex reassignment candidates. Finally, he believed that psychotherapists should be neutral to hormone therapy or surgery because there is little scientific evidence supporting the effect of the procedures on GID. He concluded that the therapy and surgery “are elective and not medically necessary.” 17

Dietz is also a licensed, board-certified psychiatrist and an academic. He is a forensic psychiatry specialist with published research in sexual, criminal, and antisocial behavior. His expertise was procured to determine whether GID is a disease or an illness. Dietz agreed that GID is a mental disorder. However, he disagreed that it is a disease or an illness because there is no established pathological process, which he believed is a necessary condition. Moreover, he asserted that a listing of a mental disorder in the DSM-IV-TR does not indicate that the condition is a disease. Rather, he testified that the mental disorder must have a demonstrated “organic or biological origin” to be a disease. 18


The Tax Court contended that both the deduction for medical care and the exclusion for cosmetic surgery depend on the meaning of “treatment” and “disease.” 19 A medical expense is deductible if it is for the treatment of a disease. 20 Similarly, if a procedure treats a disease, it is not cosmetic surgery 21 and is deductible. The court concluded that there is no difference between the noun “treatment” and the verb “treat.” Specifically, if “a procedure constitutes ‘treatment’ of a ‘disease,’ it both precludes ‘cosmetic surgery’ classification under section 213(d)(9) and qualifies the procedure as ‘medical care’ under section 213(d)(1)(A).” 22

Definition of Disease

The Tax Court found that GID satisfies the statutory definition of disease. It concluded that disease does not require etiology (i.e., an identifiable organic or physiological cause), that a mental disorder is a disease, that GID is a mental disorder, and that the taxpayer suffered from GID.

Etiology: The court noted that the IRS relied solely on Dietz’s testimony that GID was not a disease because it lacked a pathological process. It admonished the IRS for using expert testimony to establish the meaning of a statutory term because that is the judge’s domain and using an expert to do so is improper. 23 The court also noted that Dietz’s interpretation contradicted prior case law, which has established mental disorders as diseases absent “organic or physiological origin or cause.” 24 Similarly, the court concluded that both the legislative history and regulation treat disease as a physical or mental defect rather than the expert’s stringent definition, which requires an identifiable organic or physiological cause, and highlighted the taxpayer’s expert testimony that “most mental disorders listed in the DSM-IV-TR do not have demonstrated organic causes.”

Practice tip: Since, as was noted in this case, the Tax Court rarely uses expert testimony to define statutory terms, practitioners should ensure that substantiation of the claimed definition of a statutory term comes from accepted authoritative sources. The Tax Court has a history of relying upon dictionary definitions and legislative intent. 25

Mental disorder: The court emphasized that case law establishes two factors supporting that mental conditions are a disease. It was satisfied that the taxpayer’s psychotherapist and all three expert witnesses had substantiated the first factor—a professional mental health diagnosis that the condition impairs normal function and warrants treatment. 26 Ellaborn diagnosed the taxpayer with severe GID, and the experts concurred that GID may lead to autocastration, autopenectomy, and suicide if untreated.

Similarly, the court found that the second factor—the condition is listed in a medical reference text 27—was substantiated. Not only did the DSM-IV-TR list GID as a mental disorder, but all three experts acknowledged the DSM-IV-TR as the primary psychiatric diagnostic tool.

Further, the court deemed GID a “serious, psychologically debilitating condition.” It found support for this point in the testimony of the taxpayer’s expert witness that GID produces “significant distress and maladaption.” The court also cited psychiatric reference texts that stated that adult GID generally causes distress and that before it was a recognized disorder patients often self-mutilated or committed suicide. 28

In addition, the court pointed out that a majority of the federal circuits have held GID to be a mental disorder for purposes of an individual’s Eighth Amendment rights. The Eighth Amendment has generally been interpreted to require that prisoners receive adequate medical care (i.e., neglecting medical care results in cruel and unusual punishment). The Tax Court cited seven opinions in which a federal circuit court held that severe GID (or transsexualism) is a “‘serious medical need’ for purposes of the Eighth Amendment.” 29

Practice tip: Medical care costs for a particular condition are more likely to be held to be deductible if medical care for that condition previously has been held to be required for Eighth Amendment purposes in the appellate circuit in which the taxpayer resides.

Taxpayer Suffered from GID

The court was convinced that the taxpayer had GID based on the psychotherapist’s diagnosis, including the elimination of other medical conditions (depression and transvestic fetishism), and her reaction to the prescribed treatment plan. Unless a professional lacks qualifications to make a medical diagnosis, the court defers to the professional judgment of the practitioner treating the patient. 30

Treatment: The Tax Court determined that hormone therapy and sex reassignment surgery, which alter physical appearance and provide a psychological calming effect, treat GID since they alleviate distress (Regs. Sec. 1.213-1(e)(1)(ii)). However, it did not uphold the breast augmentation surgery as a medically necessary treatment, even though it is a prescribed GID treatment under certain conditions.

Based on the testimony and other evidence (i.e., the Benjamin standards and various medical texts) presented at trial, the Tax Court found that the three-step treatment hormone therapy, real-life experience, and sex reassignment surgery that O’Donnabhain underwent was an appropriate and widely accepted treatment for GID. Moreover, other courts have upheld the Benjamin standards. 31 Although the IRS’s experts questioned scientific proof of the treatment’s effectiveness, the court was not convinced by this testimony and it made clear that a consensus on the efficacy of a treatment method is not necessary for a Sec. 213 deduction. 32

Similarly, the court found that Schmidt’s assertion that some professionals disagree with the Benjamin standards because they consider sex reassignment unethical was not reason to deny a deduction. The court used abortion as an analogy, noting that an illegal procedure would be grounds for denial but ethical perceptions are not. 33 The court also dismissed Schmidt’s claim that reassignment surgery was not medically necessary, relying on the expert testimony and case law in finding that reassignment surgery is medically necessary for severe GID. 34

Breast augmentation surgery: The Tax Court evaluated the augmentation surgery separately because the IRS argued that the taxpayer had normal breasts prior to the surgery. The IRS asserted that such augmentation was cosmetic under Sec. 213(d)(9)(B) because it improved appearance, had no impact on body function, and did not treat the disease. Under the Benjamin standards, if after 18 months of hormone therapy the breast enlargement was not sufficient for the patient to be comfortable in her gender role, breast augmentation could be performed. However, the Benjamin standards require documentation from both the physician prescribing the hormones and the surgeon. The presurgical documentation presented at trial did not satisfy the court because it did not meet all of the Benjamin standards’ criteria. Specifically, only the surgeon had made a written record, and thus the evidence did not meet the requirement that the endocrinologist prescribing hormones and the surgeon performing the GID surgery document “breast-engendered anxiety” prior to the augmentation surgery. 35

Practice tip: Practitioners should ensure that appropriate medical documentation is complete. The primary reason for the Tax Court’s denial was inadequate documentation. Similarly, the concurring opinion suggests that in this case the medical notes may have been taken out of context. 36


With this decision, the Tax Court expands the scope of the medical expense deduction and the definition of what is “medically necessary.” This case establishes the precedent that GID is a mental disorder (disease) for purposes of the medical expense deduction and that hormone therapy and sex reassignment treat the disorder. Similarly, since sex reassignment treats the disease, it is not cosmetic surgery. Therefore, the medical care expenses are deductible. Although it did not allow a deduction for the taxpayer’s breast augmentation surgery in this case, the court disallowed the costs because the taxpayer had not shown with proper documentation that breast augmentation had been determined to be a necessary part of the GID treatment, as required by the Benjamin standards.

In O’Donnabhain, the Tax Court takes a broad view of Sec. 213 medical care, ruling that etiology (i.e., a physical or organic cause for the disease) is not necessary—the cost of surgery that does not address a physical condition can be deductible under Sec. 213(d)(9). It also holds that consensus in the medical community about the efficacy of a treatment is not necessary for its costs to be deductible. Finally, it narrows the exclusion for cosmetic surgery by saying that if surgery treats a disease, it is not cosmetic (a point that the dissent in the case vigorously disagreed with).

This was a case of first impression, and it remains to be seen if the Tax Court has created a blueprint for establishing the deductibility of costs for treatments for other disorders that are uncommon or have no physical etiology. It has been over 30 years since a court established that sex reassignment surgery was medically necessary and was covered by insurance. 37 Now the Tax Court has added sex reassignment surgery to the list of tax-deductible medical expenses.


1 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508.

2 Rev. Ruls. 2003-57 and 2003-58, 2003-1 C.B. 959; IRS Letter Ruling 200318017 (5/2/03).

3 O’Donnabhain, 134 T.C. No. 4 (2010).

4 The total deficiency for the 2001 tax year was $5,679, with $5,115 attributable to the medical deductions. United States Tax Court Petition, O’Donnabhain, Docket No. 6402-06 (March 31, 2006).

5 O’Donnabhain, slip op. at 3–4.

6 American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders (4th ed. text revision 2000).

7 The Harry Benjamin International Gender Dysphoria Association originally published the standards in 1979. The successor organization, World Professional Association for Transgender Health (WPATH), publishes GID standards of care. As of February 2001, the original 1979 standards had been through six revisions. The Tax Court chose “Benjamin standards of care” as its moniker.

8 See O’Donnabhain, slip op. at 4–6, for the psychotherapist’s details on diagnosis and treatment.

9 Sec. 213(a).

10 Sec. 213(d)(1)(A).

11 Regs. Sec. 1.213-1(e)(1)(ii).

12 Sec. 213(d)(9). The Tax Court noted that there are no cases of precedential value for interpreting the cosmetic surgery exclusion (O’Donnabhain, slip op. at 30, citing Al-Murshidi, T.C. Summ. 2001-185, where determination was made under Sec. 7463).

13 Sec. 213(d)(9)(B).

14 Sec. 213(d)(9)(A).

15 O’Donnabhain, slip op. at 14–15.

16 Id. at 17.

17 Id. at 20.

18 Id. at 22.

19 Sec. 213.

20 Sec. 213(d)(1)(A).

21 Secs. 213(d)(9)(A) and (B).

22 O’Donnabhain, slip op. at 33–34.

23 Id. at 35, citing Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99 (1st Cir. 1997); and Prigmore, 243 F.3d 1, 18 n.3 (1st Cir. 2001).

24 O’Donnabhain, slip op. at 37, citing Fay, 76 T.C. 408 (1981); Jacobs, 62 T.C. 813 (1974); Fischer, 50 T.C. 164 (1968); Starrett, 41 T.C. 877 (1964); Hendrick, 35 T.C. 1223 (1961); and Sims, T.C. Memo. 1979-499.

25 See, e.g., South Jersey Sand Co., 30 T.C. 360 (1958).

26 O’Donnabhain, slip op. at 37–38, citing Fay, 76 T.C. 408 (1981); Jacobs, 62 T.C. 813 (1974); Fischer, 50 T.C. 164 (1968); and Hendrick, 35 T.C. 1223 (1961).

27 O’Donnabhain, slip op. at 39, citing Starrett, 41 T.C. 877 (1964).

28 Sadock and Sadock, eds., Kaplan & Sadock’s Comprehensive Textbook of Psychiatry 1646, 1659 (Lippincott Williams and Wilkins 2000); Gelder, López-Ibor, and Andreasen, eds., New Oxford Textbook of Psychiatry 914 (Oxford University Press 2000).

29 O’Donnabhain, slip op. at 45, citing De’lonta v. Angelone, 330 F.3d 630, 634 (4th Cir. 2003); Allard v. Gomez, 9 Fed. Appx. 793, 794 (9th Cir. 2001); Cuoco v. Moritsugu, 222 F.3d 99 (2d Cir. 2000); Brown v. Zavaras, 63 F.3d 967, 970 (10th Cir. 1995); Phillips v. Michigan Dept. of Corr., 932 F.2d 969 (6th Cir. 1991), aff’g 731 F. Supp. 792 (W.D. Mich. 1990); White v. Farrier, 849 F.2d 322 (8th Cir. 1988); and Merriwether v. Faulkner, 821 F.2d 408, 411–413 (7th Cir. 1987).

30 O’Donnabhain, slip op. at 48, citing Flemming, T.C. Memo. 1980-583; Fay, 76 T.C. 408 (1981); Jacobs, 62 T.C. 813 (1974); and Fischer, 50 T.C. 164 (1968).

31 O’Donnabhain, slip op. at 53, citing Gammett v. Idaho State Bd. of Corr., No. CV05-257-S-MHW (D. Idaho 7/27/07); Houston v. Trella, No. 2:04-CV-01393 (D.N.J. 9/25/06); Kosilek v. Maloney, 221 F. Supp. 2d 156, 158 (D. Mass. 2002); and Farmer v. Hawk-Sawyer, 69 F. Supp. 2d 120, 121 n.3 (D.D.C. 1999).

32 O’Donnabhain, slip op. at 57, citing Dickie, T.C. Memo. 1999-138 (naturopathic cancer treatments deductible); Crain, T.C. Memo. 1986-138 (holistic cancer treatments deductible but for failure of substantiation); Tso, T.C. Memo. 1980-399 (Navajo sings (healing ceremonies) deductible); Rev. Rul. 72-593, 1972-2 C.B. 180 (acupuncture deductible); and Rev. Rul. 55-261, 1955-1 C.B. 307 (services of Christian Science practitioners deductible).

33 O’Donnabhain, slip op. at 58, citing Rev. Rul. 73-201, 1973-1 C.B. 140 (cost of abortion legal under state law is deductible medical care under Sec. 213).

34 O’Donnabhain, slip op. at 59, citing Meriwether v. Faulkner, 821 F.2d 412 (7th Cir. 1981); Pinneke v. Preisser, 623 F.2d 548 (8th Cir. 1980); Sommers v. Iowa Civil Rights Comm’n, 337 N.W.2d 473 (Iowa 1983); Doe v. Minnesota Dep’t of Pub. Welfare, 257 N.W.2d 819 (Minn. 1977); and Davidson v. Aetna Life & Cas. Ins. Co., 420 N.Y.S.2d 450 (N.Y. 1979).

35 See O’Donnabhain, slip op. at 62.

36 O’Donnabhain, slip op. at 71 (Halpern, J., concurring).

37 Davidson v. Aetna Life & Cas. Co., 420 N.Y.S.2d 450 (N.Y. 1979).


Lynn Comer Jones is an associate professor at the University of North Florida in Jacksonville, FL. For more information about this article, contact Prof. Jones at

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