Monthly Archives: April 2014

Taboo Trades Reading Lists

One of the things that I talked about with Christian and Joe the other day was my course on Taboo Trades and Forbidden markets that I’ve blogged about on a number of occasions. Some folks have reached out to ask for a reading list or other information about the course, so I finally got around to putting up reading lists and other resources on my webpage.

Head on over if you’re interested in what I cover. You’ll see that I have a core of readings that I assign each year, then rotate among other readings and topics depending on my current interests. I’ve also linked to a few blog posts that address particular readings, speakers, or issues that I cover.

If you teach a similar course please leave a comment letting me know more about your course and coverage. And if anyone is interested in a “taboo trades” syllabus repository and is willing to share let me know that as well – I’ve been thinking about putting one together as a shared resource.

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Flesh List Is Me

Yes, I know that sounds very weird.

I spent Friday afternoon recording a podcast with Christian Turner and Joe Miller for Oral Argument and had tons of fun. Christian and Joe are great at this and almost managed to make me sound interesting and knowledgeable. You know that old saying about a voice made for blogging . . . yea, well, here I am being me. But the substance is good, I think.

Here is the pod cast description:

EPISODE 17: FLESH LIST (GUEST KIM KRAWIEC)

Psst, do you want to buy a kidney? How about a human egg, or a baby? We talk about taboo markets and tragic choice with Kim Krawiec. Topics range from egg “donation” to kidney transplants, altruism, reference transactions, military service, sex, and more. How do we allocate scarce goods when enough of us just don’t believe the goods should be traded like loaves of bread? Program note: We failed to ask Kim whether Joe is monstrous on account of his views on speed trap norms. Our apologies to the listeners and to Kim.

I’ve embedded the audio above, but if you’re interested in the episode (or prior episodes, which I blogged about earlier) it’s worth heading over to Oral Argument to look at the show links that Christian and Joe have put together. One of the great things that Joe and Christian do with each episode is to create a set of show links that point the reader/listener to works and people that are referenced during the podcast. For example, the show links for Flesh List contain links not only to a few of my articles, but to works by Viviana Zelizer, Peggy Radin, Richard Posner, Guido Calabresi, and others, all of which we discuss during the hour-long show.

I think that a junior scholar, or really anyone wanting to jump into a new set of ideas, could listen to these podcasts, follow some of the links, and get a good introduction to some of the important works and debates in the field. I’ll be back with more to say later about some of the ideas we discuss in the podcast, but for now I leave you with Flesh List for your Sunday entertainment.

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Taxing Eggs on Oral Argument

Folks who followed the Taxing Eggs symposium here at the Lounge a few weeks ago might also be interested in the most recent episode of Oral Argument, The Astronaut’s Hair, featuring Lisa Milot, one of our tax expert participants in the Taxing Eggs symposium. The episode is really well done, and touches on the taxation (and other legal and cultural issues) involving the sale of gametes, plasma, hair, artwork, and other items.

I was unaware of Oral Argument until this episode and am now going back to listen to the prior episodes, which cover everything from substantive legal debates to law school rankings to the roles of legal scholarship and law blogging. According to the website, Oral Argument is “a podcast about law, law school, legal theory, and other nerdy things that interest us” and is “a product of the collision of Joe Miller and Christian Turner.” Prior episodes are:

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The NCAA and Taboo Trades

“It cannot be said that the Employer’s scholarship players are ‘primarily students’”

The National Labor Relations Board Region 13

Northwestern University (Employer), and College Athletes Players Association (CAPA) (Petitioner)

Case 13-Rc-121359

imagesRegular Lounge readers have heard me discuss before my seminar on Taboo Trades and Forbidden Markets.  Although markets in human organs, gametes, sex work, commercial surrogacy, and the like are probably more standard fare in a course of this nature, I think that college athletics and amateurism also have a place, and I normally spend some time each semester on college sports (plus, it’s Duke, what do you expect? There’s probably some requirement that we discuss basketball in class, but no one told me about it, since I always discuss basketball in class anyway)*

This year, though, the landscape feels different to me. Perhaps I’m just particularly attuned to these cases, given my research interests in the area, but I’m dedicating more class time to college athletics this year and there is certainly a lot more to cover. Most folks have probably heard by now about yesterday’s NLRB ruling in favor of the Northwestern players. For those who want to read the full ruling, I’ve uploaded a copy here.

Northwestern will appeal, of course, but regardless of the ultimate outcome, I find the ruling interesting, both because of the language and reasoning employed by Peter Sung Ohr, director of the board’s Chicago regional office, and because of what the ruling might signal about the broader legal environment. Coupled with progress in the O’Bannon case, the recent antitrust complaint filed by Jeff Kessler (of NFL free agency fame) against the NCAA and five conferences alleging a cartel that illegally caps player compensation, and controversy surrounding head injuries in football, it seems to me that the NCAA is under fire as never before.

I’ll be back in subsequent posts with more to say about these other cases, but for now I just wanted to highlight a few parts of the NLRB ruling. Ohr concluded that “all grant-in-aid scholarship players for the Employer’s football team who have not exhausted their playing eligibility are “employees” under Section 2(3) of the Act.” In so finding, Ohr reviewed the football staff, player rules, athletes’ time commitment to the sport, their recruitment and academic life, and the revenues and expenses generated by Northwestern’s football program, all of which makes for interesting reading. I found this excerpt particularly noteworthy (emphasis mine):

[I]t cannot be said the Employer’s scholarship players are “primarily students.” The players spend 50 to 60 hours per week on their football duties during a one-month training camp prior to the start of the academic year and an additional 40 to 50 hours per week on those duties during the three or four month football season. Not only is this more hours than many undisputed full-time employees work at their jobs, it is also many more hours than the players spend on their studies. In fact, the players do not attend academic classes while in training camp or the first few weeks of the regular season. After the academic year begins, the players still continue to devote 40 to 50 hours per week on football-related activities while only spending about 20 hours per week attending classes. Obviously, the players are also required to spend time studying and completing their homework as they have to spend time practicing their football skills even without the direct orders of their coaches. But it cannot be said that they are “primarily students” who “spend only a limited number of hours performing their athletic duties.”

In today’s class, we cover some background reading, including excerpts from a book by my colleague, Charlie Clotfelter, Big Time Sports In American Universities.

*Note to Klein, Ramseyer, and Bainbridge: can you do something about all those baseball cases in the book, since that is not a sport that I watch?

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Hobby Lobby at The Glom

Our friends over at The Conglomerate are hosting an online symposium for the next four days on Sebelius v. Hobby Lobby Stores, Inc., (the United States Supreme Court with hear oral arguments tomorrow). Though nearly all of the 84 amicus briefs submitted in the case explore the religious freedom issues, rather than the corporate law issues, Jayne Barnard, who will be in the courtroom tomorrow, asks: Will corporate law be the tail that wags this dog?  Posts by Steve Bainbridge and Nate Oman are already up, and I’m sure that more will follow.

The question presented in that case is whether the Religious Freedom Restoration Act of 1993 “allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners.” This case has attracted the attention of corporate law scholars, and for the next four days, we will be hosting an online symposium about the case. We have invited scholars on both sides of the issue to weigh in, and we invite you to join us for a vigorous, respectful debate over this important issue.

On Tuesday, March 25, the United States Supreme Court with hear arguments in Sebelius v. Hobby Lobby Stores, Inc. The question presented in that case is whether the Religious Freedom Restoration Act of 1993 “allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners.” This case has attracted the attention of corporate law scholars, and for the next four days, we will be hosting an online symposium about the case. We have invited scholars on both sides of the issue to weigh in, and we invite you to join us for a vigorous, respectful debate over this important issue.

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Taxing Eggs: The Wrap-up

6a00e54f871a9c883301a5117406b1970c-500wiI wanted to again thank our guest bloggers, commenters, and readers of last week’s Taxing Eggs mini-symposium and collect the links to all of the posts in one place for easy reference (see below).  In wrapping up, I also wanted to move away from the specific tax questions we’ve been debating, and address some larger issues raised by the case.

As my colleague Larry Zelenak says in his post, “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.”  Perez v. Commissioner, then, may illustrate yet another of the ways in which our discomfort with these transactions involving the body impedes a rational development of the law governing them.

I have previously argued, for example, that our failure to fully recognize egg “donation” as the robust commercial industry that it is harms donors and intended parents alike.  Does this same failure account for IRS willingness to accept the “pain and suffering” story from egg donors who have been 1099’d, despite our tax experts’ consensus that exclusion from income based on pain and suffering is not even a plausible, much less correct, tax treatment?  If so, then Perez may represent the flipside of the problem I have complained about: rather than harming egg donors and fertility customers, the tax system has been subsidizing third party reproduction through a failure to tax egg donor payments like the ordinary income or sale that it is.

Another notable aspect of egg donation brought to light by Perez v. Commissioner is the extent to which at least some egg donors are aggressively (and successfully) managing their income tax liability for income earned through egg donation.  Perez herself – a five-time egg donor — followed advice provided by other egg donors on the internet to successfully challenge previous IRS notices.  I discussed in my introductory post the savvy advice provided by “Elizabeth,” an eight-time egg donor, on how to avoid tax liability for egg donor payments, including consulting with the lawyers who draft the contracts, citing the appropriate IRC provisions, and policing the contract language to ensure that “your contract clearly outlines the facts that you are being compensated for physical injury, in consideration of future medical complications, and emotional suffering in addition to any economic losses endured.” Comments to Elizabeth’s post suggest that other egg donors are seeking out such guidance and following the advice to proactively manage their tax liability on income earned from egg donation.

It is, of course, possible that these cases are not representative of most egg donors, but these examples are surely inconsistent with many commonly held views of egg donors as poor, exploited, coerced, and the newest form of trafficked humans.  Indeed, the trial transcript depicts Perez as an intelligent, informed woman, more than capable of weighing the benefits of commercial egg donation against the risks.

None of this is meant to suggest that we should not worry about the safety of egg donation and take steps to ensure that egg donors have been properly informed of and understand the risks involved. But it does suggest – at least to me — that we need to carefully examine the source of our assumptions about the capacity and competence of egg donors. Are those concerns based on the actual characteristics of egg donors, or on the mere fact that egg donation is a risky job performed only by young females?

 

Taxing Eggs Mini-Symposium – The Complete Set

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Taxing Eggs: About that Other Case

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One of the things I’ve enjoyed about Perez v. Commissioner is Judge Holmes’s “bedside manner” for lack of a better term.  For example, I really like the way he takes pains to ensure that Perez understands the attention she is likely to get in this case, as illustrated in this excerpt Bridget discussed the other day.

But this is by far my favorite exchange in the trial:

Court: You pay between five, well 5500, and 10,000. Is that right?

Witness: Yes.

Court: One reads occasionally in the press these ads, you know, Ivy League undergraduate woman, 50,000 per. Are those true in your experience, or

Witness:  In our experience with our agency, not at all. What happens is the American Society for Reproductive Medicine that is the governing body, if you will, for egg donation agency and fertility matters, in order to be listed on their approved list of agencies, you have to stay within that five to ten thousand dollar range. . . .

Court: Do you know anything about antitrust laws? (emphasis mine)

Witness: I do not.

Judge Holmes is a man after my own heart.

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Taxing Eggs: Lisa Milot Responds

6a00e54f871a9c883301a5117406b1970c-500wiBelow is an excellent follow-up from Lisa Milot, responding to some of the questions I posed to the tax gurus earlier today.  Lisa’s first post can be found here.

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I think those are great questions, Kim, in part because I’m not sure there are definitive answers for the most part. I could speculate about why the § 104(a)(2) argument has made it as far as it has, but my guesses aren’t any better than anyone else’s—I’d love it if someone with actual knowledge of the inner workings of IRS audits in this area weighed in. So I’ll focus on how I reached the conclusion that (at least a substantial part of) the payments in question are for the eggs themselves (not for services).

As a starting point, I agree with Bridget that some portion of the payment is for services. The total payment due to Ms. Perez upon completion of the egg donation process was $10,000. If she did not complete the donation cycle, she would receive $500 (if she had taken injectable medications before cancellation), $1,200 (if she had taken stimulation medications), or $1,500 (if she had taken the HCG/trigger shot) (Donor Agreement at 7). Because these amounts would be paid if the appropriate stage of the cycle had been reached and in the absence of egg retrieval, I think up to $1,500 should probably be characterized as for performance of a service.

However, at least most of the remainder of the fee seems to be for the eggs themselves. While Ms. Perez was paid $5,000 for her first donation, in 2009 she received $10,000 per cycle because of her prior “experience” (Trial Transcript at 56-57). It would be helpful to have more information about the track records of the donors who receive the increased fees as compared to those who do not, but my guess is that the relevant experience is that of a successful prior cycle: one in which a sufficient number and quality of eggs are retrieved. If only a few eggs are retrieved in an initial cycle or the eggs are of low quality, I suspect a clinic would not use the donor again or, if it did, intended parents would not be willing to pay a $5,000 premium for that donor’s eggs. If all of this is right, the increased fee for repeated successful cycles seems like a payment for a tested donor’s more desirable eggs.

That still leaves $3,500 of the total fee unallocated. Some portion of that is no doubt allocable to the donor’s time in coming to the clinic for the retrieval, but I think that probably only a small portion of it. The Donor Source, the egg donor agency that contracted with Ms. Perez, advertises on its website that:

The procedure takes approximately 30 minutes. You will stay in a recovery room to ensure that you have no unusual side effects from the medication. In most cases, you will be able to get dressed and go home about 2 hours after the procedure. (http://www.thedonorsource.com/egg_ret.htm)

It seems unlikely to me that much of the $3,500 could be compensation for this 2½ hours of time, given that the daily appointments and injections for several weeks prior paid, at most, $1,500.

Now, the Agreement and the testimony at trial are both clear that Ms. Perez would be paid the complete fee if the retrieval was completed, regardless of the number or quality of the eggs retrieved. However, the catch with this approach is that it is unusual for a clinic to schedule a retrieval unless it is pretty confident it will be able to harvest a sufficient number of mature eggs. As you note, the clinic’s COO testified at trial that the clinic has paid a donor the full contract fee even though no eggs were retrieved “a couple times”. While on its face this fact supports the argument that the income is not tied to the eggs themselves, The Donor Source (http://www.thedonorsource.com/) reports that it has “over 2,000 satisfied Intended Parents since inception” in 2003. This means that out of thousands of retrievals, in only a few instances has payment been made without an accompanying transfer of eggs. Instead, Ms. Perez’s experience is far more typical, as evidenced in this exchange at trial between Judge Holmes and the clinic COO:

THE COURT: Hmm. We learned from Ms. Perez that she had been told at least that in each of her cycles in 2009, between 15 and 20 potentially viable eggs were harvested. Is that typical in your experience?

THE WITNESS: It is. (Trial Transcript at 94)

My general understanding of usual fertility clinic practices backs this up. The monitoring required during the stimulation phase of an IVF cycle tracks the number and size of follicles being produced by the donor’s ovaries. While there isn’t a 1:1 relationship between follicles and eggs (for example, some follicles don’t contain any eggs while others might contain multiple), the cycle is usually cancelled if there are an insufficient number of follicles or they are not progressing as expected. In the case of a donor cycle (as opposed to one in which an intended mother undergoes stimulation), I would be surprised if the cycle were not always cancelled if few follicles develop as anticipated. But that’s just a guess.

Assuming all my assumptions are correct (a neat trick available to law professors but not practicing attorneys), this means that most of the amount (close to $8,500 per cycle) received by Ms. Perez was in exchange for her eggs. Now, I could be convinced otherwise if, for example, the clinic still worked with the donors who didn’t produce eggs despite going through the entire cycle or if intended parents selected those donors at the same rate as the more productive ones. But I don’t expect that’s the case.

The other question, of course, is whether a woman’s rights in relation to her eggs under state law (here CA law) are sufficient so that eggs are property for Federal tax purposes. (My previous Article discusses this issue with respect to state law generally, but not specifically for CA.) But this post is long enough, and posting my thoughts on this matter here would make my Tuesday Property class—when we’re discussing property rights to human body materials—far less interesting if any of my students are visitors here.

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Taxing Eggs: What Have We Learned?

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Many, many thanks to our fabulous tax bloggers Bridget CrawfordLisa Milot, Paul Stephan, and Larry Zelenak for joining in the discussion of Perez v. Commissioner yesterday. I wanted to take a stab at recapping/synthesizing some of the points that have emerged from the discussion, ask a few more questions, and play devil’s advocate (as any good moderator should.)

First, the point on which all of our experts seem united is the weakness of the 104(a)(2) claim – that is, the payments to Perez are not taxable because they are compensation for her pain and suffering.  Yet, this is precisely the ground on which the IRS has apparently allowed Perez and other egg donors to exclude such income in the past.  Why have they allowed this if the argument is so weak? This question largely stems from my lack of knowledge of how the IRS works “on the ground” in such matters.  Are these just independent (and, perhaps, isolated) decisions from low-level bureaucrats, in which case we shouldn’t read too much into them?  Or does this suggest some sort of IRS informal policy decision that has perhaps changed during the time when Perez was an egg donor (2007-2009)?

Second is the sale of bodily property versus compensation for service question.  Paul treats the contract as controlling, concluding that the transaction is one for services.  Lisa treats the transaction as a sale of eggs, while Larry believes that the question is “anybody’s guess.” Bridget argues that, because the egg provider is paid a lump sum that “will be reduced if no eggs are retrieved,” then it is proper to think of the compensation as “one amount for taking the medicines in preparation for egg provision” and an “additional amount must be for the sale of the egg itself.”

So here we have much less unity of opinion and I’m wondering why that is.  What is the source of the disagreement among you on this point? What are the types of things that a court would analyze in making this determination and what weight is likely to be given to each?

And let me just play devil’s advocate with Bridget here for just a minute, in part because she is the one who gave the most explanation for her position.  Here is what the transcript says about what occurs in the event of non-retrieval of eggs:

Q: Under the contract, is the individual going through the stimulation and retrieval process paid whether or not the eggs are retrieved?

A: As long as they get to the retrieval process, yes.

Q: And can you explain that?

A: They can start taking stimulating hormones . . .and if for some reason they don’t stimulate well and the fertility doctor’s not pleased with the outcome [the fertility doctor can instruct the donor to stop the medication.]

Q: Would she still be compensated at that point?

A: She would be compensated but on a lower scale.

Q: And if she were to go through the entire procedure, and everything appeared fine, and yet no eggs were retrieved, would she still be paid?

A: Yes, as long as there was no fault found from her for not taking the medications properly.

Q: And has that ever happened?

A: Yes, a couple of times.

[Counsel then asks whether the donor is paid even if only low quality unusable eggs are retrieved and the answer is yes.]

So, it seems to me that this could just as easily be characterized as payments for a series of services, culminating in the retrieval process, and that so long as that final service – retrieval — is performed full compensation is awarded regardless of whether eggs are transferred.  My question for Bridget then is, how are you so sure that this is a sale of an egg rather than the provision of a service (egg retrieval)?

Thanks again to our expert tax panel – all of whom are invited to respond to this recap with further posts or comments, but are in no way obligated to do so.  We’ve taken enough of your time already and are grateful for the insights that you’ve shared so far.  In any event, I will be back later with a wrap-up and concluding thoughts about what the Perez case teaches us regarding egg donor practice and other matters.

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Taxing Eggs: Lawrence A. Zelenak

6a00e54f871a9c883301a5117406b1970c-500wiMany 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.

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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.

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