WASHINGTON DC, United States - An American transsexual who was audited after deducting the cost of gender reassignment surgery when filing her taxes has won an appeal asserting the operation was a legitimate medical expense.

Rhiannon O'Donnabhain, 65, took her case before a US tax court after the Internal Revenue Service challenged her right to deduct USD$5,000 ($7076.26) of the USD$25,000 ($35,380) she spent on the operation in 2001.

Lawyers from advocacy group Gay and Lesbian Advocates and Defenders (GLAD) agreed to take on her case and argued that she was entitled to take advantage of IRS rules allowing the deduction of some medical costs, like chemotherapy, if the individual's health insurance does not fully cover the procedure.

Tax officials said O'Donnabhain's operation was not eligible for the deduction because it was a purely "cosmetic" procedure.

On Tuesday, the tax court rejected that claim.

"The evidence amply supports the conclusions that petitioner suffered from severe gender-identity disorder (GID), that GID is a well-recognized and serious mental disorder, and that hormone therapy and sex reassignment surgery are considered appropriate and effective treatments for GID," the court ruling said.

GLAD hailed the ruling as a "victory" in a teleconference on Wednesday.

"It's incredibly significant," said Karen Loewy, a senior staff attorney at GLAD.

"This is the first time that a court that has jurisdiction nationally reaches such a conclusion," she added.