What Now for Same-Sex Married Couples? (No. 74)

December 1st, 2015

There are more than 1,100 places in federal law where a protection or responsibility is based on marital status. The ruling striking down DOMA will not be effective until 25 days from the decision, but even when effective, federal agencies—including the IRS—may need and take some time to change forms, implement procedures, train personnel, and efficiently incorporate same-sex couples into the spousal-based system.

Summarized below are a few of the many tax issues potentially affecting married same-sex couples now that DOMA has been invalidated. In all likelihood, there will be specific guidance forthcoming from the IRS before the next income tax filing deadline for tax year 2013. Expect more details soon.

Filing Status

A 2004 government report identified 198 separate Internal Revenue Code provisions tied to marital status, highlighting the dramatic impact of marriage on personal taxes.

Most experts believe that the IRS will instruct married same-sex couples to file their 2013 income taxes as “married”—whether jointly or separately—rather than as “single” or “head of household,” provided that the IRS recognizes the marriage.

For those marriages recognized by the IRS, tax preparation should be simpler and less expensive than it was with DOMA. The questions that have faced married same-sex couples at tax time, like “who claims which child” and “how much of the mortgage deduction or charitable deduction do we each take,” are eliminated for married same-sex couples who may now take these deductions together in one joint return.

Who Will the IRS Consider Married for Tax Purposes?

This is a critical question to answer before filing 2013 income taxes, and we expect guidance from the IRS on this point. There may be a period of uncertainty because under current IRS practice, a person can file his or her income tax return as “married filing jointly” or “married filing separately” if the individual is considered married in his or her state of domicile.  That practice seems to suggest that only people in states that license or recognize marriages of same-sex couples and in D.C. can expect to be treated as married by the IRS.  However, there is no statute or regulation requiring this approach. In addition, the IRS does not always follow this practice.  For example, the IRS recognizes “common law” marriages for federal tax purposes no matter where a couple lives as long as their marriage was valid where entered. This will likely be an evolving area of law.

Civil Unions and Registered Domestic Partners (RDPs)

We will have to await specific guidance from the IRS on whether couples in civil unions or RDPs will be allowed to use a married filing status.  Some experts believe these are not spouses eligible to be treated as “married” for federal tax purposes.  However, Chief Counsel for IRS in Illinois stated in a letter that a heterosexual couple joined in civil union, which Illinois had recognized “as husband and wife,” were permitted to file federal returns with the filing status “married filing jointly.”

Prior Years

Josh Keller of the New York Times estimated that “at least 82,500 gay couples have married since Massachusetts became the first state to legalize gay marriage in 2004 [through 2012].”  While it is extremely unlikely that IRS will require amended returns for back years, same-sex marrieds who will benefit from a married filing status need to consider their options now.

Generally, for a credit or refund, one must file Form 1040X within 3 years (including extensions) after the date of filing of the original return or within 2 years after the date the tax was paid, whichever is later.  If the original return was filed early (for example, March 1 for a calendar year return), the return is considered filed on the due date (generally April 15).  However, if the taxpayer had an extension to file (for example, until October 15) but filed earlier and IRS received it July 1, the return is considered filed on July 1.

A taxpayer should also be advised of the potential downsides of amending prior year returns, including an increased risk of audit, possible assessment of a tax deficiency, and in some instances, the burden, expense, and uncertainty of litigation.