Assignment 2: Court Cases

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Step 1: Establish the facts and determine the issues Phoebe, my client, contracts with Fertility Specialists to donate her eggs. Although she does not get paid for the eggs because they are considered donation, she does receive a donor fee totaling $12,000. This fee covers the painful egg stimulation and extraction procedures. When donating eggs the procedure involves a lot of time, effort, inconvenience, pain and suffering. Her contract explicitly states, “The payments are for her pain and suffering and not for the sale of her eggs.” Phoebe’s marginal tax rate is 15% and elects to take a tax standard deduction. The main question phoebe wants answered is whether her payments is taxable and if it is taxable how much would she pay in income taxes. Step 2: Locate the relevant authorities Using any tax service leads us to IR code, Title 26, Subtitle A, Chapter 1, Subchapter B, Part III Section 104, “Compensation for injuries or sickness” and the court case regarding Perez v. Commissioner, 144 T.C. NO. 4. Step 3: Assess the importance of the authorities IRC Section 104 (a)(1)(B)(III)(104) addresses the …show more content…

Commissioner 144 T.C. NO. 4 was a similar court case where Perez received two checks totaling $20,000 for two donations of her unfertilized eggs and did not report it for tax purposes. Her contract stated that the “fee is for Donor’s time, effort, inconvenience, pain, and suffering in donating her eggs … [and for] good faith and full compliance with the donor egg procedure, not in exchange for or purchase of eggs and the quality or quantity of eggs retrieved will not affect the donor fee.” The question of the law is whether a person who suffers physical pain or suffering donating eggs may be excluded income because it is considered a damage received. The verdict stated, “Compensation for pain and suffering resulting from the consensual performance of a service contract is not ‘damages’ under I.R.C. section 104(a)(2) and must be included in gross