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One-man sperm bank denied tax break

U.S. Tax Court rules that nonprofit status would not be appropriate.

By Karen Datko Jul 14, 2010 8:29PM

How thoughtful is this? A California sperm bank is willing to donate its product to wannabe moms, who would otherwise have to pay if they can't find their own supplier. Sperm can cost anywhere from several hundred to several thousand dollars a vial, and you generally need more than one. That's pricey.

So why couldn't that sperm bank obtain nonprofit, tax-exempt status from the IRS? The U.S. Tax Court recently ruled against the Free Fertility Foundation, settling a six-year dispute.


The court cited a couple of reasons, Kathy Kristof reports at CBS MoneyWatch. Most important seems to be that the sperm bank has only one donor -- the foundation's founder and director, Donor fwcn02453.


Another in this unusual tax case is that relatively few applicants have been approved to accept the gift. "Over a 2-year period, petitioner received 819 inquiries and provided sperm to 24 women," the court's ruling said. The foundation uses a computer-generated score based on applicants' responses to a questionnaire, but the donor and his father, who serves as chairman of the board, have the final say.


The court said, "… we are not convinced that the distribution of one man's … sperm to a small number of women, selected in the manner presented, promotes health or confers a public benefit." Petition for nonprofit status, and all of its benefits, denied.


Our curiosity piqued, we had to wonder: How do other sperm banks operate?


California does have a nonprofit sperm bank, The Sperm Bank of California, which says it's the only U.S. nonprofit of its kind. Donors must pass a physical screening and meet or exceed certain educational and physical specifications, and the online donor catalog is quite extensive. There, interested parties can read about donors' education, personal and family medical histories, and also their responses to a short questionnaire about their personality, interests and goals in life.


Donors are also asked why they want to participate. One wrote:

I want to be a sperm donor because I feel that people should have independence in life to live however they want. Especially for ladies if they want to be a single mother they should get the opportunity. Also financially it helps me too.

Donors are paid $100 per useable vial and $500 when they complete the program. (Participation is not indefinite.)


Recipients pay $605 to $760 for one vial each month (they can order more than one), including shipping, after a one-time registration fee of $100. Recipients are required to provide very basic personal information. Questions on the registration form about race, sexual orientation and relationship status are optional.


The one-donor Free Fertility Foundation says donors should be motivated by humanitarian concerns, not financial ones. It also says women deserve to know as much as possible about these guys. (The site says the foundation hopes to have more than one donor someday.)


Plenty of photos and information are provided about Donor fwcn02453, including intellectual achievements (starting with a second-place science fair award in the third grade) and athletic awards (second- and third-place finishes at college swimming meets). He apparently was a very active and inquisitive child.


Potential recipients are asked to provide lots of information about themselves. The court called the selection process "very subjective, and possibly arbitrary." The ruling said:

In deciding who receives the sperm, petitioner has certain preferences that narrow the class of eligible recipients. It is not apparent what, if any, relationship some of these preferences have to the promotion of health. For example, petitioner prefers women "from families whose members have a track record of contributing to their communities" and women "with better education."   

In conclusion, Kristof wrote:

"Simply put," the tax court ruled earlier this month, Free Fertility’s activities may "promote the propagation of [one man's] seed and population growth, but they do not promote health for the benefit of the community."

Any thoughts?


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