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KIDNEY SWAPS: NOT A 1031 EXCHANGE?

February 27, 2006

Two women are donating kidneys to each other's husbands. The protean Dr. Maule thinks that they have a problem (aside from the one-kidney thing): they may have taxable income from the swap:

The exchange is not a gift because they each get something in return. Each has a basis of zero in the exchanged kidney. Each has an amount realized equal to the fair market value of a kidney. The like-kind nonrecognition rules do not apply because it's not a trade, business, or investment activity. No other non-recognition provisions are relevant. There's no exclusion applicable to the transaction.

Of course, there remains one helpful tax planning option: divorce. If they swap husbands, then the transaction should be sheltered by Section 1041, which exempts from gross income transfers of property between spouses or incident to a divorce. A simple switch of husbands will make the whole thing non-taxable. Sure, there are non-tax reasons that come into play, but if the wives are close enough to swap kidneys, maybe something can be worked out.

ktul.jpgDr. Maule doesn't address the tax issues arising out of kidney theft, a common imaginary problem for traveling salesmen, like the poor guy in the adjacent photo.

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Comments


Great catch!

Saw this and just HAD to link it.

IIRC, about 10 or 12 years ago, Law & Order had an episode where a father hired a surgeon to swipe a kidney for his daughter. A cool $1 million for the job. Now I'm starting to wonder if the producers missed a great tax angle on the story.

Hank, you must be really building a readership. You sent me quite a few visitors last night. Thank you!


You're quite welcome! This post just really tickled me. I'd say that I laughed so hard that my kidney's hurt, but that would (probably) be in poor taste.

On a serious note, I never really thought about the tax implications of transplants. In general, most of the costs are borne by the insurer (altho apparently not in this case). Are there usually tax problems in transplant cases, or is this one different because of the unique circumstances?

there are so many tax issues and regulations that if thought out clearly dont make such a transaction taxable that I am surprised at the
idea that anyone but the irs would attempt to support such an insupportable position....but it wont be the first time they wanted money they were not entitled to....I hope this was a satirical posting and I just didn't get it because I was actually thinking the position out....before I realized it was a joke...? there is a reason they call it organ "donation".....its not the same as a car under your seat on oprah's set....

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