The Law Offices of Ronny Buni,
A Professional Corporation, located in New York City. Ronny Buni is an experienced tax and business attorney.

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Same-sex Marriage and Federal Income Tax Returns

Posted on July 21st, 2011 by bunilaw

Section 3 of the Defense of Marriage Act (DOMA, codified as 1 USC sec. 7), prevents the federal government from treating any union of same-sex persons as a marriage, regardless of its status under state law. That means IRS cannot accept jointly filed returns from same-sex couples, even if those couples are married under state law. For the same reason, IRS will not accept married filing separately returns from same-sex married couples. IRS will only accept a filing status of single, or, if one spouse qualifies, head of household, from same-sex married persons. This article addresses the following questions:

Why file a joint return?
Couples with disparate income levels get the most benefit from filing a joint return. If you and your spouse’s income is similar, you may get little or no benefit from filing a joint return, and may even pay more aggregate tax (a so-called “marriage penalty”) than if you were both to file as single. The reason for the benefit to many joint filers is a combination of a graduated income tax and the way our tax rate schedules work. When a couple with disparate incomes files jointly, some of the income of the higher earning spouse is taxed at lower marginal rates. Couples with similar incomes may pay a marriage penalty when filing because most rate brackets for joint filers are not quite double those for singles. A discussion of the marriage penalty and policy issues surrounding it can be found here.
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Are there reasons not to file a joint return?
Yes. Filing jointly means you become jointly and severally liable for your spouse’s tax. Your separate assets may be seized to satisfy your spouse’s tax. If marital finances are not completely unified, or if there is not transparency between spouses of all income-producing activity and payment of taxes, a spouse may want to elect to file separately. These considerations have to be weighed against the benefits of filing jointly. While many couples would benefit from filing jointly, in the case of couples with similar incomes, the benefits may be small or negative.

Can same-sex couples file a joint state return while filing as single on their federal returns?
Yes.  Your federal filing status does not have to match your state filing status. All states with income taxes that allow same-sex marriage must allow joint filing unless they also enact discriminatory legislation in their tax statutes. No state is going to do that.
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Is there an advantage to filing as single?
For many same-sex married couples who want to to file separately, it will actually be an advantage to file as single rather than MFS. This is because MFS aggregate deductions and credits are likely to be less than for single status. Despite this small advantage to some same-sex married persons, the denial of joint filing is likely to result in same-sex married couples paying significantly more tax, overall, than similarly situated opposite-sex couples, because joint filing carries significant benefits for many couples with disparate incomes.
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Why doesn’t IRS let same-sex couples file jointly or MFS?
Because it can’t. IRS is a government agency. In a system like ours that is accountable to an electorate, IRS’ only mission is to implement the law. IRS does not determine which laws are good, bad, or constitutional. IRS can and does report to Congress, complain to Congress, ask Congress for help, but it is ultimately bound by what Congress decides. Congress decided to pass DOMA, and it was signed into law by President Clinton. IRS is bound by section 3 of DOMA, which applies to federal agencies.

We should be happy IRS handles things this way. Suppose Congress passed a law making it more difficult for IRS to collect taxes from delinquent taxpayers (as Congress has), and that IRS said it wasn’t going to follow it. People would rightfully feel that Congress and taxpayers had lost control of a government agency,

In our system of government, the courts decide whether laws are constitutional. If the Supreme Court says that DOMA is unconstitutional, IRS will stop enforcing it. If a lower court rules against DOMA, IRS will have to decide whether it will continue to litigate that position in other circuits. IRS has made no indication of whether it would acquiesce to a Court of Appeals ruling, but in the present political climate, it’s my prediction that IRS would acquiesce.
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Will IRS-issued guidance help?
Very little. In late June 2011 eight U.S. senators1wrote to Commissioner Shulman requesting that IRS provide “appropriate guidance” for same-sex married couples and domestic partners. The senators allege same-sex married or domestic partners had trouble “calculating their tax returns.” The letter also says there are special problems in community property states with same-sex marriage or domestic partnerships: California, Washington, and Nevada. In these states same-sex couples are subject to community property laws if they are married (CA only) or registered in some form of domestic partnership (all three states).

The letter is vague about what the problems are or what Commissioner Shulman should do to help. Senator Feinstein’s office, listed as point of contact in the letter, was evasive and unhelpful in clarifying the problems, saying in an email response to inquiries that “the letter speaks for itself.” A spokesman from Senator Feinstein’s office also failed to follow up by telephone as promised.

Same-sex couples may experience three types of problems in filing their federal income tax returns:

1. Additional preparation cost to file as married for state purposes and single for federal purposes. This problem will not affect couples with only Washington or Nevada-source income or other states that do not have an income tax. It could affect couples from California and other jurisdictions that have an income tax and that require same-sex persons in married or domestic partnerships to file as married. Intuit directs same-sex couples who use Turbotax to the desktop version of the product and says it does not charge more for preparing federal returns from the desktop version. The additional complexity and cost to some same-sex couples is a result of DOMA and the limited functionality of many tax preparation softwares and online solutions. IRS did not create this problem. Commissioner Shulman cannot resolve it. It’s unfair for the eight senators, three of whom voted for DOMA (Murray-D-WA, Leahy-D-VT, Harkin-D-IA), to present it to the public otherwise.

2. Reporting half of community income and getting credit for half of community withholding or other tax payments on federal, single returns. Couples subject to community property laws share income equally. Withholding or other tax payments by one spouse belongs to both spouses regardless of how they file. By contrast, in common law jurisdictions like New York, withholding by one spouse is not credited to the other spouse unless a joint return is filed. Couples who attempt to efile their federal returns may have their reported income questioned or may have trouble getting credit for their share of community tax payments because the spouse’s name and social security number will not be transmitted when a single status return is filed electronically. If, for example, IRS detects less income reported on the return than what’s reported in its database, it may flag the return and request additional tax. Failure to respond timely or adequately to IRS inquiry may result in enforced collection. IRS may need to adjust its efiling system to allow transmission of spousal information when there is community income. Alternatively, it could issue guidance to same-sex couples in community property states about how to use form 1040 to report community income and claim community withholding or other tax payments.2 Absent guidance, taxpayers should file their federal returns manually. My office recommends reporting individual income on lines 7 and following (2010) and making any adjustments for community income on the line for “other income” (line 21 on 2010 form). In addition, the spouse’s return should be attached as a clearly marked exhibit, and an explanation should accompany the return. This should avoid most problems.

3. Calculating community income and tax payments. This is a problem for all couples who file separately, both same-sex and opposite-sex, who are subject to community property laws in any community property jurisdiction. Although DOMA exacerbates this problem by forcing all same-sex couples to file separate federal returns, repealing DOMA will not eliminate the problem. The difficulty is that while married persons generally share community income and tax payments equally, multiple factors may affect the way these items are shared, including a pre-nuptial agreement recognized under state law, the timing of marriage during the tax year, or a move by one or both spouses in or out of the state. Most tax prep products intended for consumers are not sophisticated enough (yet) to account for these factors and allocate community income. Intuit offers special instructions to same-sex married or domestic partners in the three states to help its Turbotax customers correctly prepare their returns.

The senators do not note that while IRS Pub. 555 makes it clear that anyone subject to community property laws in the three states, including same-sex married persons in California, must report half the community income, the Pub. does not explicitly say that those persons are also entitled to half the community withholding and other tax payments. That’s a small point on which IRS could improve its communication with taxpayers.
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Will DOJ’s decision not to defend DOMA affect IRS’ position?
Not likely. In February 2011 U.S. Attorney General Eric Holder announced that the Department of Justice (DOJ) will no longer defend DOMA against constitutional challenge in federal court. While the DOJ represents the IRS in federal court other than the Tax Court, IRS gets its legal advice from its Office of Chief Counsel. The Office of Chief Counsel has to give the best advice it can to its client, and it isn’t subject to directives of DOJ about what that advice has to be. In U.S. Tax Court, we should expect Chief Counsel to defend DOMA, because it doesn’t normally make determinations about the constitutionality of laws, and because Chief Counsel’s office has to make sure its client implements the law.
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Is DOMA unconstitutional?
In my opinion, section 3 of DOMA, which forbids the federal government from recognizing same-sex marriages, violates the 10th Amendment. It may also violate the Equal Protection Clause of the 14th Amendment, but for reasons beyond the scope of this article I feel the 10th Amendment argument is stronger and more likely to succeed at the Supreme Court. I am addressing only section 3 of DOMA, and am not offering any opinion here about the constitutionality of section 2, which permits states to disregard same-sex marriages of other states.

Under our Constitution, the federal government has limited powers. It must be able to trace every law it passes, and each thing it does, to some authority in the Constitution. If it can’t find the power in the Constitution, it can’t lawfully do it. One of the powers the federal government doesn’t have is a general police power. That means the federal government can’t make laws intended to promote the general welfare unless the powers it exercises are authorized in the Constitution.

States are different. States have all the power of a king, including a general police power. As long as they obey the federal Constitution, states can do anything they want. If the Constitution doesn’t mention it, the 10th Amendment gives the states unlimited power to act. This is why states have laws against rape and burglary, but the federal government doesn’t.

I see nothing in the Constitution giving the federal government the power to define marriage or try to preserve its traditional character as between a man and a woman. Marriage has always been the province of the king, and of states. For all of U.S. history, states have exercised exclusive control over marriage with rare federal intervention, as when a state tried to prevent mixed race couples from marrying. In my view, section 3 of DOMA arrogates traditional state authority over marriage to the federal government, violating the 10th Amendment.

This viewpoint does not depend on whether I am for or against same-sex marriage, or on any sense of unfairness in singling out same-sex couples for different treatment. The 10th Amendment argument depends only on the balance between federal and state power as required by the Constitution. I like this argument because it can reach justices who will not be convinced that same-sex couples should have 14th Amendment protection.

If a 10th Amendment argument succeeded against section 3 of DOMA, it would allow married, same-sex couples to file jointly. It would not prevent states from passing their own laws to allow or outlaw same-sex marriage. For that reason the 10th Amendment argument may be de-emphasized by some advocates of gay rights.

An equal protection argument would have to show that same-sex couples represent a class of persons that government should not be able to pick out for special treatment without strong and convincing reasons. While this may appeal to a basic sense of fairness, it turns out that the history of jurisprudence in this area makes it difficult to succeed. Only a few classes of persons have been found to have special protections under the 14th Amendment.

If a 14th Amendment equal protection challenge succeeded against DOMA, it would invalidate all of DOMA, not just section 3. It would also mean that under the Supremacy Clause, states could not enact laws prohibiting same-sex marriage and would have to accept same-sex marriage as a matter of federal constitutional law. This would be a powerful result, so you can see why advocates of gay rights would favor it. But in Buni’s view, it is much less likely to succeed than the 10th Amendment approach.

Any challenge to DOMA should raise all constitutional arguments as convincingly as possible.
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What is Buni’s advice for getting relief from DOMA?
Married, same-sex couples may be able to get relief from DOMA by litigating the issue. My offices will represent clients who meet our criteria for appropriate plaintiffs. Appropriate plaintiffs must demonstrate they have both the means and firmness of intention necessary to succeed in litigation. At least one spouse must reside in New York state. Preferably, the couple can show an aggregate tax saving from joint filing because of spousal income disparity. If represented by our offices, plaintiffs would file their federal return jointly while prominently disclosing that 1) they are a same-sex couple, 2) they have a good faith belief that section 3 of DOMA is unconstitutional, and 3) they are prepared to litigate their entitlement to file jointly in federal court.
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Contact our offices for more information.

  • 1The letter was signed by Patty Murray (D-WA), Maria Cantwell (D-WA), Dianne Feinstein (D-CA), Barbara Boxer (D-CA), Sheldon Whitehouse (D-RI), Patrick Leahy (D-VT), Tom Harkin (D-IA), and Jeff Merkley (D-OR). The letter directed any questions to Senator Feinstein’s office.
  • 2Pub. 555 tells same-sex married couples and domestic partners from the states of California, Washington, and Nevada that they must report half the community income on their federal return, but it does not and probably cannot explain what constitutes community income in every community property state. Those are state law questions that taxpayers may need competent professional advice to resolve.

 

© 2011 Ronny Buni and The Law Offices of Ronny Buni, A Professional Corporation

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