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February 26, 2014


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Nancy Staudt

The Commander would like to weigh in!

In my opinion, this arrangement seems a whole lot like every employment contract with which I am familiar: Compensation for the time, inconvenience, and discomfort associated with the work performed. Given that the law bars the sale of organs or body parts--courts are apt to find this composition for services rendered and not a sale.

Lisa Milot

Hi Nancy - While it's often phrased that way (and in the trial transcript that's how both witnesses explained why this couldn't be a sale of eggs), US law doesn't bar the sale of body parts generally.

Federal law makes it illegal to buy "organs" for "transplant" purposes, but gametes aren't organs. (I'm also not convinced a post-fertilization embryo transfer is a "transplant" but haven't researched this point.) Some state laws make it illegal to buy human eggs in at least some instances (for example, it is illegal in CA to buy eggs for research purposes), but there's no general ban on buying or selling human body materials.

But even if someone is engaged in an illegal activity, taxes are still due on the income, so the question remains: what's the character of the income?

Lisa Milot

Is income from a commissioned painting conceptualized the same as a sale by an artist of a non-commissioned painting? (I.e., is the income "service" income in the former case and "property" in the latter, are both property, or is the income on the commissioned painting part-service & part-sale?)

There might not be much authority on this given that self-created artistic works are classified as ordinary income property so the property/service distinction makes no difference to the Federal tax treatment, but if there is, this could be a useful analogy.

(I suspect there are various state tax provisions that could speak to this - e.g., sales tax treatment, whether employment law protections apply if the working conditions of the commissioning are controlled by the buyer - but I'm wondering if we can get to this answer on the federal tax level.)

Kim Krawiec

Commander! Thank you for joining us.

Lisa, on the legality of egg sale question, is 367f the controlling statute here? "(1) "Human organ" includes, but is not limited to, a human kidney, liver, heart, lung, pancreas, or any other human organ or
nonrenewable or nonregenerative tissue except plasma and sperm." I suppose the language "not limited to" could mean that eggs have been or could be included within the intended definition through judicial interpretation. But I am not aware of any cases on point (but then I haven't looked).

I do not know what the recent CA legislative efforts regarding eggs used for research purposes tell us, if anything, about the status of sales of eggs themselves (as opposed to payment for the service) of eggs used for fertility treatments, but perhaps you've followed that more closely than I have.

Lisa Milot

On the federal level, 42 USC 274e prohibits the transfer of human organs for valuable consideration for use in human transplantation and defines human organ to mean: “the human (including fetal) kidney, liver, heart, lung, pancreas, bone marrow, cornea, eye, bone, and skin or any subpart thereof and any other human organ (or any subpart thereof, including that derived from a fetus)". So eggs aren't covered there.

I've just started looking at the CA state issue, honestly, so I could be wrong here. My reading though is that 125350 prohibits the sale of oocytes for medical research or development of medical therapies and 24185 prohibits the purchase of ovum for cloning purposes, while 125325 explicitly contemplates financial payments/compensation for eggs for fertility treatment.

The recent legislative efforts with respect to this area of the Code were, I believe, an effort to allow compensation for eggs for research purposes. Relevantly, the associated legislative history contemplates these sorts of payments for fertility purposes (the Assembly Bill, for example, states that "The best source of available embryos for research comes from embryos created for fertility using a compensated donor...Due to the ban on compensation [for eggs for research purposes], oocytes and embryos not needed for fertility will be unsuitable for research and will likely be discarded.")

While not entirely clear (what exactly is the compensation for fertility purposes for - the eggs themselves or the services?), the lack of a prohibition for payment for eggs for fertility purposes equivalent to the explicit ban for such payments for research & cloning purposes suggests to me that the payments for the eggs themselves are legal in CA.

You're right, though, that 367(f) of the CA Penal Code states that "(a) Except as provided in subdivisions (d) and (e), it shall be unlawful for any person to knowingly acquire, receive, sell, promote the transfer of, or otherwise transfer any human organ, for purposes of transplantation, for valuable consideration." and (c)(1) seems to include eggs as nonrenewable or nonregenerative tissue.

However, 367(e) provides: "This section shall not apply to the person from whom the organ is removed, nor to the person who receives the transplant, or those persons' next-of-kin who assisted in obtaining the organ for purposes of transplantations."

Thus, if egg retrieval, fertilization, and embryo transfer add up to a "transplant" (which I'm not sure they do), I think (but could be wrong) that the woman producing the egg and the woman receiving it (although not a clinic in the middle) are exempt from the coverage of 367(f) because of subsection (e).

(I suspect this is why the clinics structure the contract between the donor and the intended parents, even though I expect that the $10,000 (or whatever) payment is made form the intended parents to the clinic who then cuts the check for the donor (and the clinic most likely issues the Form 990, not the intended parents.))

I also haven't researched the caselaw though...anyone else out there more up to speed on the CA law provisions?

Lisa Milot

Too many lettered sections and subsections for a Saturday morning :-)

"However, 367(e) provides: " should read "However, 367f(e) provides..." and my references to "367(f)" should all be to "367f".

Kim Krawiec

Thanks Lisa! All very helpful. And, yes, I should have specified that my reference was to the CA penal code, but you managed to divine that anyway. As you say, too many statutes w/o sufficient coffee this morning!

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