Case Western Reserve University tax law expert Leon Gabinet monitors how the IRS has provided some needed clarity in a changing scenario
The days leading up to the April 15 tax filing deadline could be especially challenging for recently married same-sex couples as they figure out how to correctly file their taxes for 2013—a year that, for some, was both liberating and possibly confusing.
Seventeen states and the District of Columbia allow same-sex marriage. The rest have constitutional amendments or laws prohibiting it. Tax laws can be confusing for married same-sex couples, because federal and state guidelines often conflict and are in flux.
The Internal Revenue Service (IRS) has been clarifying tax-related issues affecting same-sex couples, but complicated circumstances may need further attention, either from the IRS or in the courts, according to Leon Gabinet, a tax law professor at Case Western Reserve University School of Law.
“We can only hope the IRS will provide guidance on these and other issues, but tax advisors may be sure these issues will create problems for same-sex couples for years to come,” Gabinet, the Coleman P. Burke Professor of Law at Case Western Reserve, wrote in the his legal research article “Taxation of Same-Sex married Couples After Windsor and Hollingsworth.” It was published last fall in The Journal of Taxation of Investments.
A lot changed for same-sex couples last June, when the Supreme Court’s decision in United States v. Windsor struck down as unconstitutional the 1996 Defense of Marriage Act (DOMA) Section 3. The decision defined marriage for purposes of federal law as being limited to the union of a man and a woman. But DOMA’s Section 2, allowing states and U.S. territories to either recognize or deny the legality of same-sex marriages, remains.
The same day, the Supreme Court dismissed Hollingsworth v. Perry, finding that proponents of California’s ban on same-sex marriage (California’s Proposition 8) did not have standing to appeal a district court’s order invalidating the ban. The ruling made permanent a 2010 federal district court ruling that found Proposition 8 unconstitutional.
After the Supreme Court same-sex marriage decisions last year, the IRS issued a rule that regards people as married legally if the marriage is legal where it occurred, regardless of where the couple may choose live.
“This means, for example, that a same-sex couple married in a state where same-sex marriage is legal may file a joint federal income tax return even if they live in a state where same-sex marriage is not permitted and not recognized,” Gabinet said. “Since there are about 1,100 provisions that are affected by marital status, the ruling clarifies the application of these provisions to same-sex couples.”
But even that rule might not be clear-cut in some situations, such as when there is a divorce involving a same-sex couple residing in a state where the marriage is recognized. They would be subject to IRS provisions governing alimony and inter-spousal transfers of property. But it might not be clear what happens when one of them, no longer married, moves to a state that doesn’t allow same-sex marriage, Gabinet noted.
More commonly, state taxes complicate how to file. Some states that do not recognize same-sex marriage can require a same-sex couple to file state taxes separately, even when federal taxes are filed jointly. That procedure varies by state.
“Ohio is a non-recognition state and requires gay couples to file singly even if legally married elsewhere,” Gabinet said.
The future of state legislative and constitutional provisions banning same-sex marriage (“mini DOMA” laws) is unclear and will undoubtedly be an issue for the federal courts, Gabinet said. Even matters not involving taxes could have a wide-ranging effect on future taxpayers.
For example, in Ohio, a federal district court judge has ruled—through a temporary restraining order—that the state must recognize a same-sex marriage that legally happened in Maryland and permit married as the marital status on a death certificate after one same-sex spouses died.
“While the decision is limited to the death certificate issue, the basis for the decision was that the Ohio mini-DOMA law is unconstitutional,” Gabinet said. “State officials have indicated that the case, Obergefell v. Kasich, will be appealed. This may lay the groundwork for an ultimate decision by the Supreme Court regarding the constitutionality of state-mini-DOMA laws.”