By Michelle Lowenstein
Last August, I wrote a column asking whether the Internal Revenue Service (IRS) had changed its position on registered domestic partners (RDPs) not being allowed to file joint federal tax returns. A private letter ruling and a memorandum from the Office of Chief Counsel at the IRS suggested that it had. Since then, the Obama Administration announced it had determined that the Defense of Marriage Act (DOMA) was unconstitutional and that it would no longer oppose legal challenges to it. But, Congress has yet to repeal DOMA, the U.S. Supreme Court has yet to declare it unconstitutional, and House Speaker John Boehner is on record that he would initiate Congressional action to defend DOMA. In fact, in early March, a House of Representatives panel voted to direct general counsel to defend DOMA.
With the April 15 deadline to file taxes looming, what is the best way to file your federal income taxes if you are a married same sex couple or an RDP?
It is important to understand that there is no clear answer to that question. Each couple must speak to a tax advisor and reach their own conclusions about whether to file joint federal tax returns. Remember, in California since 2007 because of the State’s community property laws, RDPs have been required to either file joint State income tax returns or declare half of their partner’s income on the state return unless they have entered into the equivalent of a prenuptial agreement.
So, what is the advantage of filing joint federal tax returns versus filing separate return as a single individual?
There can be an advantage if one partner earns all or the lion’s share of the income. In this case, filing a joint return can result in a lower taxation rate. In addition, married couples are entitled to a larger standard deduction. However, it is always best to have your tax preparer run the taxes with the partners filing jointly, separately or as single individuals. Nothing can replace sound tax advice tailored to your particular situation. Many tax practitioners are still not convinced that RDPs or same-sex married couples are entitled to file joint federal tax returns notwithstanding the recent private letter ruling and the memorandum from the Office of Chief Counsel at the IRS. Remember, we are still in unchartered waters. With a Republican House of Representatives and the possibility of the Republicans retaking the White House next year, DOMA is far from dead, and a new Republican Administration will take an active role in enforcing DOMA. Couples who file joint federal tax returns may still get audited and the IRS may later decide that these couples were not entitled to file joint returns.
Last August, when I wrote about this issue, I pointed out that same-sex couples living in New York who were married in another state are not allowed to file joint New York state income tax returns. California RDPs and those legally married in other states or jurisdictions are required to file joint California state income tax returns and may now be eligible to file joint federal tax returns. In the first instance, New York has relied on federal law (DOMA) and in the second instance the IRS appears to be relying on state law. To make matters more confusing an appellate court in New York has held a survivor of a same-sex marriage can inherit as a spouse. This is a landmark decision. However, apparently, being able to claim surviving spouse status and being able to file joint state tax returns may be mutually exclusive in New York. The law in this area is far from settled.
To read more on this vital topic I suggest the excellent articles at Lambda Legal and SmartMoney.com: http://alturl.com/rfcvn and http://alturl.com/5mybr.
—Michele Sacks Lowenstein is a certified family law specialist in San Diego. She has been practicing family law for 30 years and has served three terms as the chair of the Family Law Section of the San Diego County Bar Association. She is a member of the Greater San Diego Business Association (GSDBA).