The Federal Tax Consequences of Surrogacy

Over the past 20 years, assisted reproductive technology (ART) has developed at a rapid pace, forcing courts and legal scholars to tackle increasingly complex social issues, as well as ethical dilemmas. Legal aspects of surrogacy, such as parental rights and custody matters, have been addressed in some state statutes and have been extensively discussed by attorneys, judges, and judicial scholars. Yet, it appears that the tax treatment of payments to surrogates has not been part of this discussion. This exploratory paper discusses the following aspects related to federal taxes and surrogacy: (1) potential exclusion from gross income under Section 104, Section 71(c), or Section 102; (2) taxability of "extras,'' like an allowance for clothing and food, reimbursements for pregnancy-related absence from work, and fees for certain procedures such as an amniocentesis or a cesarean section; (3) type of income and the surrogate's employment status; (4) deductibility of surrogacy-related expenses for the intended parents; and (5) tax policy implications.