The IRS has issued guidance, in question-and-answer format, to clarify certain filing questions and ambiguities faced by same-sex couples in state-recognized marriages, civil unions, and domestic partnerships. Despite the facts that the Obama Administration has decided not to defend the Defense of Marriage Act (DOMA), and that a number of courts have struck down the key provision in DOMA that denies recognition of same-sex marriages for purposes of administering federal law, the IRS continues to maintain that legally married same-sex couples don't qualify for tax benefits otherwise available to heterosexual married taxpayers.
In 1996, Congress enacted, and President Clinton signed into law, the Defense of Marriage Act (DOMA). Section 3 of DOMA defines marriage for purposes of administering Federal law as “only a legal union between one man and one woman as husband and wife.” It further defines “spouse” as “a person of the opposite sex who is a husband or wife.”
In large part, DOMA was a reaction to the possibility that states would begin to legally recognize same-sex marriages. The impact of DOMA's definition of marriage is estimated to affect at least 1,138 federal laws and regulations, and to deprive approximately 100,000 legally married same-sex couples of the benefits afforded to heterosexual married couples.
In February of 2011, Attorney General Eric Holder announced that the Department of Justice would no longer defend DOMA's constitutionality because he and President Obama believed that a heightened standard of scrutiny should apply to classifications based on sexual orientation, and that the aforementioned Section 3 is unconstitutional under that standard.
A number of courts have upheld challenges to DOMA Section 3 in several tax-related contexts. For example, in Dragovich v. Dept. of Treas, a California district court struck down the DOMA-based exclusion of same-sex couples from tax-favored Code Sec. 7702B(f) state long-term care insurance plans. Soon after, in a case involving a DOMA-based denial of the estate tax marital deduction for a decedent's same-sex spouse, a New York district court found that DOMA Section 3 violated the equal protection clause (Windsor v. U.S). Additionally, in Pedersen, et al., v. Office of Personnel Management, a Connecticut district court ruled in favor of same-sex spouses who sought tax refunds equal to the difference between the amounts they paid based on separate vs. joint filing.
The IRS abides by DOMA
In its most recent pronouncement on the issue, the IRS continued to defer to DOMA in its guidance to same-sex couples. Among other things, IRS stated that:
Same-sex couples who are legally married for state law purposes may not file using either married filing separately or married filing jointly status.
A taxpayer can't file as head of household based solely on his or her same-sex partner, regardless of whether the same-sex partner is the taxpayer's dependent.
If a child is a qualifying child under Code Sec. 152(c) of both parents who are same-sex partners, either parent, but not both, may claim a dependency deduction for the child.
If a same-sex couple adopts a child together, each same-sex partner may claim the adoption credit in an amount equal to the qualified adoption expenses paid or incurred for the adoption. The same-sex partners may not both claim a credit for the same expenses, and neither partner may claim more than the amount of expenses that he or she actually paid or incurred.
If a taxpayer adopts the child of his or her same-sex partner, the taxpayer may claim an adoption credit for the qualifying adoption expenses.
Same-sex couples also face complications in filing their state tax returns. Although states that recognize same-sex marriage clearly permit those couples to file joint returns, many state's returns are completed in reference to the taxpayers' federal return (e.g., by using the taxpayers' federal adjusted gross income as a starting point). Thus, same-sex spouses may have to complete a pro-forma federal return as if they were permitted to use married filing status in order to complete their state return.
Legally-married same-sex couples who disagree with the IRS should nonetheless consider filing in accordance with its view denying their marital status to avoid incurring penalties. Those who want to pursue the matter should consider filing an amended return claiming a tax break that is currently allowable only to spouses of the opposite sex. In making such a claim or claims, they should disclose that they are a legally married same-sex couple and are making the claim on the basis that Section 3 of DOMA is unconstitutional. Presumably, IRS will deny the claim. After IRS denies the claim, the couple can then sue for a refund in district court.
If you are in a same-sex relationship, have considerable assets and are not sure how the law applies where you are, don't hesitate tocontact The Tax Warriors. We are always prepared to help with any kind of tax compliance issue.