Many thanks to my Duke colleague, Lawrence A. Zelenak, for agreeing to join us in discussing Perez v. Commissioner today. Larry is the Pamela B. Gann Professor of Law at Duke University and teaches income tax, corporate tax, and a tax policy seminar. His publications include numerous articles on tax policy issues and a treatise on federal income taxation of individuals. His most recent book is Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax (University of Chicago Press, 2013). Larry’s post is below.
*****************************************************************************
Other bloggers have commented ably on the various technical issues affecting the income tax treatment of the sale or donation of human eggs. For what it’s worth, I think the income-inclusion question is pretty clear-cut. Even if the transaction is understood as a transfer of property (rather than the performance of services), a seller/donor has no tax basis in her eggs. (Likewise, of course, for sellers/donors of sperm, blood, kidneys, hair, etc.) And the exclusion for damages received on account of personal physical injuries shouldn’t apply here--basically because contract-based payments for consented-to injuries aren’t “damages” within the meaning of section 104(a)(2). As others have suggested, however, the right answer to the question of whether the income is ordinary income, short-term capital gain, or long-term capital gain, is anybody’s guess. Is this the performance of a service (ordinary income) or the sale of property? If it is a sale, is it a sale of inventory (ordinary income) or of a capital asset? If it is a sale of a capital asset, has the taxpayer held the asset for less than a year (short-term capital gain) or more than a year (long-term capital gain)? I’m more sympathetic to the case for long-term capital gain than some of the other commentators, but nobody really knows. It is striking that, despite one hundred years of development of federal income tax doctrine, and despite the fact that sales/donations of eggs, sperm, blood, hair, etc., are far from rare, we still don’t have clear answers to these questions.
But I think this indicates a weak point in the structure of the income tax, rather than any deep philosophical question about taxation and commodification. If Ms. Perez uses the money from her egg sale/donation to make retail purchases, everyone would agree (I think) that the purchases would and should be subject to her state’s retail sales tax, just like purchases financed from any other source. If that’s right, then there isn’t any deep question about the appropriateness of tax here; it’s merely a question about the application of one particular sort of tax. Any given tax base has both areas where it works well, and areas where it doesn’t. This happens to be an area where a retail sales tax outperforms the income tax, but there are plenty of other areas where the opposite is true.
Related Posts:
Taxing Eggs: Introduction to Perez v. Commissioner
Taxing Eggs: Lawrence A. Zelenak
Taxing Eggs: Bridget Crawford and Crawford, Part II
Taxing Eggs: What Have We Learned?
Taxing Eggs: Bridget Crawford III
Taxing Eggs: Lisa Milot Responds
Comments