Genetic testing may be tax deductible

Tax Hot Topics newsletter The IRS ruled in PLR 132576-18 that the costs of health-related genetic testing are deductible medical care expenses.

In the letter ruling, the taxpayer had a healthcare flexible spending account (FSA) and sought to use the FSA to purchase genetic testing services, resultant reports, and a DNA collection kit offered by 23andMe, a for-profit genealogy company regulated by the Food and Drug Administration (FDA). 23andMe offers a service package that includes reports on an individual’s ancestry as well as the individual’s health.

A purchaser of 23andMe’s service package receives a DNA collection kit, which is used to collect a DNA sample from the individual and is sent to 23andMe for genetic testing. From the resulting test data for its health services, 23andMe generates reports, which provide an individual with the results from the testing laboratory and general information regarding genetic health risks, carrier status, wellness, and traits. The goal of the health services is to give individuals a deeper understanding of their health risks and to encourage individuals to provide the information to a healthcare provider for additional testing, diagnosis, or treatment.

The health-related services may not be purchased separately from services relating to ancestry. Accordingly, the taxpayer planned to use the FSA to cover the retail price of only the health-related services and reports, plus the price of the DNA collection kit, as medical care expenses.

The IRS concluded that only the cost of the health-related services constituted tax deductible medical care, and that a reasonable method must be used to value and allocate the cost of genetic health services between services that are medical care (e.g., genotyping at the laboratory) and non-medical services or items (e.g., reports that provide general information on a test result). Furthermore, the DNA collection kit does not constitute a cost for medical care if only purchased for ancestry services. If both health and ancestry services are purchased, the price of the DNA collection kit must be allocated between the ancestry services and health services using the percentage representing the cost of the health services divided by total cost of ancestry plus health services.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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