Green v. Commissioner
1980 U.S. Tax Ct. LEXIS 64, 74 T.C. 1229, 74 T.C. No. 90 (1980)
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Rule of Law:
An individual's regular and continuous activity of selling blood plasma for profit constitutes a 'trade or business' under Section 162 of the Internal Revenue Code, allowing for the deduction of ordinary and necessary business expenses, but personal expenses like general health insurance or basic food costs remain nondeductible.
Facts:
- Margaret Cramer Green resided in Milton, Florida, and had other income from wages, but her primary source of income in 1976 was from donating blood plasma.
- Green had been engaged in the activity of donating blood plasma to Serologicals, Inc. (the lab) for approximately 7 years.
- The plasma donation process, known as plasmapheresis, involved removing a pint of whole blood, centrifugally separating the plasma, and returning the remaining red cells to Green's body, with Green being paid by the pint.
- Green, who possessed the rare AB negative blood type, reported gross receipts of $7,170 from her donor activity in 1976, which included 'commissions' and travel allowances.
- To ensure the quality of plasma, Green's blood was regularly tested for iron, protein, and antibodies, and she needed to replace lost items through diet.
- During 1976, Green made 95 trips to the lab, a distance of 20 miles one way (40 miles round trip), for which she received travel reimbursement.
- Green incurred expenses for medical insurance premiums, special drugs, high protein diet foods, and believed she was entitled to a depletion allowance for minerals and antibodies in her blood.
- Green's household during 1976 consisted of herself and three teenage children, and she spent a total of $2,705 on groceries for the household.
Procedural Posture:
- The Commissioner of Internal Revenue (Respondent) determined a deficiency of $577 in Margaret Cramer Green's (Petitioner's) Federal income tax for the year 1976 via a statutory notice of deficiency dated April 17, 1978.
- Respondent disallowed a significant portion of the business-expense deductions claimed by Green for medical insurance premiums, special drugs, high protein diet foods, transportation, and a depletion allowance, allowing only $132 out of $2,355 claimed.
- Green filed a petition with the United States Tax Court, challenging the Commissioner's determination regarding these disallowed deductions.
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Issue:
Does Margaret Cramer Green's regular activity of selling her blood plasma constitute a 'trade or business,' entitling her to deduct expenses for medical insurance, special drugs, high protein diet foods, travel, and a depletion allowance as ordinary and necessary business expenses under Internal Revenue Code Section 162?
Opinions:
Majority - Bruce, Judge
Yes, Margaret Cramer Green's regular activity of selling blood plasma constitutes a 'trade or business,' allowing her to deduct certain related expenses as ordinary and necessary business expenses, but not others deemed personal or outside the scope of depletion. The court first established that the payments Green received were gross income under Section 61, applying the 'undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion' test from Commissioner v. Glenshaw Glass Co. The income was characterized as ordinary income from the sale of a tangible product, rather than a service, because Green primarily released a valuable fluid extracted by the lab. The court found Green's activity to be a 'trade or business' under Section 162, noting her continuous and regular engagement over seven years, her active efforts in maintaining a special diet and making trips to the lab, and her profit motive. Consequently, Green was entitled to deduct certain ordinary and necessary business expenses. The court disallowed the deduction for health insurance premiums, deeming them personal expenses under Section 262, not business expenses, as her body is not merely a replaceable machine. Regarding special drugs and high protein diet foods, the court applied the Cohan rule to estimate and allow deductions for the additional costs beyond her personal needs incurred to maintain plasma quality. Travel expenses to the lab were allowed as business expenses because Green was effectively 'transporting her product to market'—she was the necessary container for her plasma, distinguishing it from nondeductible personal commuting. Finally, the court disallowed a depletion deduction, stating that the provisions for depletion apply to geological mineral resources, not to the human body or skills, citing Heisler v. United States.
Analysis:
This case is significant for its unique application of 'trade or business' definitions to a novel activity: selling human blood plasma. It clarifies that such a distinctive activity, if conducted regularly, continually, and for profit, can indeed be considered a business for tax purposes. The ruling further reinforces the critical distinction between deductible business expenses and nondeductible personal expenses, even when the personal expenses indirectly support a business activity, as seen with health insurance. The court's creative interpretation of travel expenses, viewing the taxpayer as the 'container' for her product, offers an important precedent for similarly unique situations where the individual's presence is indispensable for product delivery.
