The Tax Court's recognition of the body as a valuable commodity, when combined with other well-settled principles of the tax law, carries with it a variety of unsettling implications. More specifically, a literal application of the law as it now stands would suggest the absurd possibility that an organ donation, whether during life or upon death, could actually generate an additional income, gift, or estate tax liability.
From the perspective of the income tax, this portent is found in living kidney donations effected through a paired exchange program .... These programs match mixed pairs of willing donors and recipients as a means of facilitating the exchange of kidneys between persons who, because of incompatible blood or tissue type, cannot make a donation directly to a relative or friend.
By definition, these transactions entail a quid pro quo: the exchange of one kidney for another. It is this "bargain" element that gives rise to the bizarre prospect that they would implicate the income tax. This possibility derives from the axiom that, in the absence of an express statutory exception, an exchange of one item of property for another is a taxable event.
When strictly applied, the literal terms of the law would draw no reliable distinction between a taxpayer who engages in the noble and uncommon act of donating a kidney via a paired exchange and one who participates in a routine commercial endeavor involving a more widely-traded commodity. As noted above, for example, the Tax Court has found that income derived from the sale of blood plasma is conceptually the same as that generated by the sale of any other product, without regard to "the traditional sanctity of the human body." Thus, without regard to our notion of the body as something of an aberration when employed as the object of commerce, it is arguable that an exchange involving a kidney would be treated the same for tax purposes as any other bargain. Accordingly, gain or loss on the exchange would be measured by the difference between the fair market value of the consideration received by the taxpayer in the exchange and the basis of the property he gave up (generally, the cost incurred when he acquired it). The consideration given in a paired kidney exchange takes the form of a kidney. The taxable income generated by the exchange, therefore, would represent the excess of the fair market value of the kidney received over the cost or other basis of the kidney transferred.
The Treasury regulations describe the question of fair market value as being one of fact, and the courts have construed the concept in the familiar parlance of "the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell." Admittedly, the concept of value is perplexing when considered in the specific context of an essential bodily organ. The very idea that a "willing" buyer could act without "compulsion" in a contract involving the exchange of a life-giving thing is an anomaly of thought. Yet, this fundamental problem aside, the mere fact that the law precludes the existence of a legitimate market in which buyers and sellers may trade in these "goods" does not alone render them without value, as the market in illicit drugs so readily attests. To the contrary, the media regularly broadcasts troubling and bizarre tales of the illegal organ trade. Moreover, Medicare regularly "procures" organs, such as kidneys, at a cost measured in money. Thus, even though the "value" of a kidney might be a vague abstraction in most minds, it is, for tax purposes, arguably determinable in some manner with reference to these alternative sources of supply. The concept of basis, or the "cost" element of the gain or loss equation, is equally obscure in the realm of the body and its constituent parts. Because we do not purchase our bodies or otherwise acquire them in a transaction from which we can derive any identifiable cost, it would appear that we have a basis of zero in these, our most physical of assets. Accordingly, a participant in a living kidney exchange would realize income in an amount equal to the full value of the organ received, which could be significant.