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It's not exactly what you'd think of when you imagine what IRS agents do everyday. In Boston, experts in the nitty-gritty of tax code Section 213, Subsection D on the midst of debate over the intricacies of a sex change operation.

The IRS is being sued by a transsexual woman who claimed her sex reassignment surgery as a medical deduction. The IRS denied it and the case is now before a federal judge. NPR's Tovia Smith reports.

TOVIA SMITH: Sixty-four-year-old Rhiannon O'Donnabhain says she never had the words for it as a kid. But one some levels, she has always felt that she was born in to the wrong body. As a young boy growing up in a conservative Catholic family, O'Donnabhain tried to suppress it, playing with the guys, then working in construction, marrying a woman, and fathering three kids. But O'Donnabhain only grew increasingly tormented.

RHIANNON O: It was horrible, absolutely horrible. I was thinking that probably suicide would be the only way out of this.

SMITH: Eventually, O'Donnabhain got into therapy and began transitioning to life as a woman. She changed her name, started dressing female and taking feminizing hormones to change her body. But O'Donnabhain says it wasn't enough.

DONNABHAIN: I was a male with breasts, you know? I looked like a freak.

SMITH: In 2001, O'Donnabhain underwent sex-change surgery, removing her male genitals and doing pretty much everything doctors could to give her a female body, from vaginal reconstruction to breast augmentation. For the first time in her life, O'Donnabhain says she felt at peace.

DONNABHAIN: There are many times when I wake up in the morning, I reached out to touch myself and my thoughts are, oh, thank God. I'm not dreaming. This is real.

SMITH: All told, O'Donnabhain amassed more than $25,000 in medical bills and claimed a $5,000 deduction. But the IRS denied it, saying her surgery was cosmetic, not medical.

THEODORE SETO: The IRS is arguing that gender-reassignment surgery is really no different, conceptually, from a tummy tuck or a Botox injection.

SMITH: Ted Seto is a professor at Loyola Law School, Los Angeles. The IRS declined to be interviewed for this report, but in court, the agency is arguing that gender-identity disorder is not a disease or illness as defined by tax laws. And since sex reassignment surgery deals with the body's appearance more than function, it's not deductible. Again, Professor Seto.

SETO: The argument is, look, she is changing her appearance so as to look better, to be happier with herself. It doesn't actually treat any underlying problem.

SMITH: But O'Donnabhain insists the surgery was meant to treat a legitimate and widely recognized medical condition. Karen Loewy is her attorney.

KAREN LOEWY: It's really astonishing that the IRS is taking a position that they get to second guess the determinations of a taxpayer's medical care providers. You know, the medical community gets to decide what's medical care, not the IRS.

SMITH: But the IRS argues that the medical community is split. While some see sex-reassignment surgery as the closest thing to a cure for gender identity disorder, others at the opposite extreme, like Johns Hopkins psychiatry professor Paul McHugh, see the surgery as basically mutilating a person's properly functioning anatomy.

PAUL MCHUGH: I think the problem doesn't lie in their genitals, it lies in their mind. And we should be working on their mind. You know, we don't do liposuction on people with anorexia nervosa to help them to be more thin. We encourage them to see that this is a misdirection of human interest.

SMITH: But even the therapy O'Donnabhain sought for her gender identity disorder was rejected by the IRS as a medical expense, which O'Donnabhain says proves the agency's bias. Her case is the latest in a growing number of legal tangles over transgender rights. Courts around the nation have seen prisoners demanding sex-change hormones as part of their medical care, kindergarteners asking to be called she instead of he, and transsexuals seeking to marry or use a public restroom as their new gender.

ARTHUR LEONARD: There has been an incredible amount of litigation, but the law is all over the place.

SMITH: New York Law School professor Arthur Leonard says courts and lawmakers are struggling with questions of gender identity.

LEONARD: It all comes down to the sort of fundamental question of whether the law will accept what transgender people say is their reality. And it requires us to rethink our concept of a sort of dimorphic world, where everything is X or Y, and here is something that's sort of in the middle.

SMITH: In the end, the trans community faces an irony that is not lost on O'Donnabhain. That is, that the fight to be legally accepted and accommodated by the IRS actually depends on being seen as pathologically diseased or ill.

DONNABHAIN: It's a Catch-22. I have to accept the stigma of being labeled as having a disorder, a mental condition, yadda yadda yadda, in order to, you know, get benefits. But I haven't liked this diagnosis from the very beginning.

SMITH: Eventually, O'Donnabhain hopes the view of transgender people will follow the path of gays and lesbians who not long ago were also seen in psychiatric circles as mentally ill.

Tovia Smith, NPR News, Boston.

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