Taxman or Taxwoman?

John A. Gillmartin at the Sheep's Crib has spotted a suspicious-looking story with the duplicitous fingerprints of the State Department on it. I have nothing to add to it at this time, other than to recommend it for reading.

The present discourse is on how the current system of taxation causes the taxman (or woman) to become entangled in hot button sociopolitical issues. Though my particular (and admittedly strident) social, religious and political views will likely show through in this posting, they are largely irrelevant to the analysis that follows.

Ricardo observed that taxation "frequently operates very differently from the intention of the legislature by its indirect effects." The Income Tax as we know it in America certainly has many indirect effects upon matters not otherwise logically connected to taxation. Like sex change operations.

That class of procedures known in the medical lingo as Gender Reassignment Surgery ("GRS") are the subject of dispute and debate within the medical profession. Now it is certainly easy for me to say that men should be men and women should be women, and I do in fact take such a position. From my way of thinking, it is plainly obvious that most of these so-called "Gender Reassignment Surgeries" should not occur (though, in cases of chromosomal abnormalities or actual androgynia, I can see possible justifications for it). And while believe that the government should avoid insinuating itself into the doctor-patient relationship, it is no less imperative that the doctors practice ethical medicine. And there is no doubt in my mind that political correctness has trumped medical ethics in much if not most GRS situations.

Certain elements of society have weakened and corrupted healthy gender identity, thus stoking the demand for GRS. Mixed singles tennis player Renee Richards (formerly Richard Rashkind) had a childhood devoid of healthy gender standards (and has expressed subsequent regrets over having undergone the surgery).

Okay, so I take a strident and closed-minded view of GRS. Whether you agree with me or disagree with me does not really matter. Either way, the subject is a very politicized and controversy-ridded admixture of medical ethics (or lack thereof) and social and moral values. Last week, the IRS also was in the picture. It must be remembered that the IRS is a bureaucracy and behaves accordingly.

On 20 January 2006, the IRS Office of Chief Counsel issued Memorandum Number 200603025. A taxpayer who had undergone GRS attempted to claim the costs of the operation as a medical expense deduction on his (her?) tax return. The cognizant IRS official, obviously aware that whichever way the IRS ruled would have potential for repercussions, denied the deduction on a morality-neutral basis.

It has long been settled law that income tax deductions must be strictly construed to conform to the statute, so the IRS found that GRS does not unambiguously fit the statutory definition of a deductible expense. Consistent with its well developed bureaucratic instincts to deflect criticism and flak, the Memorandum states that "[o]nly an unequivocal expression of Congressional intent that expenses of this type qualify under [Internal Revenue Code] Section 213 would justify the allowance of the deduction in this case. Otherwise, it would seem we would be moving beyond the generally accepted boundaries that define this type of deduction."

The IRS thus threw the hot potato into the lap of Congress. And because the IRS came up with a rational and well-researched morality-neutral reason for its ruling, the courts are likely to let the ruling stand unless and until Congress specifically weighs in on the matter. Moreover, a Chief Counsel Memorandum is only valid for the taxpayer involved; it does not precedentially bind the IRS for other such cases (though there is a tacit understanding among the IRS and the taxation bar that the IRS will usually strive to be consistent in similar taxpayer situations). By issuing this as a CCM instead of a precedential Revenue Ruling, the IRS has limited its entanglement in a controversial sociopolitical matter.

Because the American public fisc is financed chiefly through the personal income taxes instead of a sales tax or an excise tax, the IRS finds itself intruding into the personal lives of the populace. A purchaser's gender, whether male, female or otherwise, is simply irrelevant in computing a sales tax paid at the cash register. But, as exemplified by CCM 200603025, a taxpayer's gender can become an issue when computing the income tax.