DOMA suit in the wings?

[AndyK]

The government is issuing the regulations needed to allow gay couples married in states that recognize same-sex marriages to file joint federal tax returns.

Treasury Secretary Jacob Lew says the new rules will provide "clear, coherent tax filing guidance for all legally married same-sex couples nationwide."

Lew said the regulations also make clear that legally married same-sex couples will be able to move freely throughout the country and their federal tax filing status will not change.

The new rules implement the tax aspects of the Supreme Court's ruling in June which invalidated a section of the 1996 Defense of Marriage Act.

The new regulations from Treasury and the Internal Revenue Service implement the court's decision on how legally married same-sex couples should be treated for federal tax purposes

The recognition of same-sex marriages for Federal income tax purposes seems to be in blatant violation of the Defense Of Marriage Act.

Let's see which one blinks first.

[EDITORIAL]My preference is for DOMA to crawl back under the rock from whence it came.[/EDITORIAL]

[notorial dissent]

I thought, that while the latest SCT ruling didn't completely trash DOMA, that it pretty well kicked most of that can to the gutter.

[Arthur Rubin]

As far as I can tell, the recent Supreme Court decision "trashed" the part of DOMA relating to Federal recognition, but not the part related to state recognition, as that wasn't part of the case. As "marriage" is defined by the states, this is still producing confusion. The IRS, at least, is taking the position that a marriage recognized under the law of the state where the marriage occurs continues to be Federally recognized regardless of whether or it is recognized by the state the couple now live in.

[notorial dissent]

Arthur, thank you. I thought that was what I had remembered as to what the outcome had been. My impression was that they were falling back on the old IRS position that if the State in question recognized it, then for tax purposes, so did they.

[AndyK]

Irrespective of SCOTUS and various maverick states which recognized these 'marriages' whic spit in the Face of God (as defined in the appropriate version of the KJB), there are still a number of states which might take issue with this.

Many states base THEIR income tax returns on the Federal 1040 (or some version thereof).

These states have approximately seven months to (1) enact new legislation and (2) implement new regulations (and possibly computer systems) to distance themselves from the satanistic regulations being foisted by the nasty feds.

Although I am happily ensconced in a heterosexual marriage, as a resident of South Carolina, I am eagerly awaiting the state's reaction to, and sidestepping of, this federal decision.

It will be extremely interesting to see how the various states which have legislatively or constitutionally banned like-sex marriages deal with this -- and how long their various regulations and prohibitions stand up to the inevitable constitutional challenges. (BTW: Litigation opposing the ban on same-sex marriages has already started in Virginia -- the last state to repeal its anit misegnation laws)

[Arthur Rubin]

Irrespective of SCOTUS and various maverick states which recognized these 'marriages' whic spit in the Face of God (as defined in the appropriate version of the KJB), there are still a number of states which might take issue with this.

Many states base THEIR income tax returns on the Federal 1040 (or some version thereof).

These states have approximately seven months to (1) enact new legislation and (2) implement new regulations (and possibly computer systems) to distance themselves from the satanistic regulations being foisted by the nasty feds.

Quite simple. Assuming that I survive the Wrath of God(TM), taxpayers in those states will have to do (in reverse) the same thing that taxpayers in states which recognize these 'marriages' did before DOMA was overturned; taxpayers must prepare "pro-forma" Federal tax returns using the "single" status, and use that to compute their state tax obligation. (The question of whether to itemize on the "pro forma" Federal return, or to make elections (potentially) different on the "pro forma" Federal return from the real Federal return, will have to left up to the state courts. I predict the courts may have a ruling this decade, assuming that the other relevant section of DOMA isn't overturned, making it moot.)

[AndyK]

[quote="Arthur Rubin]Quite simple.

Followed by a relatively involved redefinition of 'simple'.

...[/quote]

Perhaps this is just another chapter in the EEO book for tax attorneys?

[Arthur Rubin]

There are any number of examples in which taxpayers are normally required to use the same filing status for state as for Federal, but there are exceptions. Examples include:

Taxpayer Federally files MFJ (or MFS, if spouse is a non-resident alien), but spouse is a non-resident with no in-state income. (This usually requires that taxpayer is not in a community property state.) State will usually allow taxpayer to file his (or her) state return as Single.

Taxpayer is a US citizen with a non-resident alien spouse, Federally files MFS. Taxpayer is usually allowed to file MFJ, as the state election to file MFJ doesn't have the consequences that the Federal election would.

Taxpayer is in a state "registered domestic partnership", which requires filing as if married, even though it doesn't affect the Federal requirement to file as Single.

Taxpayer Federally files HoH, but the household is not in the state. The state will usually not allow HoH filing, but will require filing a part-year or non-resident return as Single.

I'm sure there are other cases, even disregarding different definitions of "marriage".

[Cathulhu]

There are any number of examples in which taxpayers are normally required to use the same filing status for state as for Federal, but there are exceptions. Examples include:

Taxpayer Federally files MFJ (or MFS, if spouse is a non-resident alien), but spouse is a non-resident with no in-state income. (This usually requires that taxpayer is not in a community property state.) State will usually allow taxpayer to file his (or her) state return as Single.

Taxpayer is a US citizen with a non-resident alien spouse, Federally files MFS. Taxpayer is usually allowed to file MFJ, as the state election to file MFJ doesn't have the consequences that the Federal election would.

Taxpayer is in a state "registered domestic partnership", which requires filing as if married, even though it doesn't affect the Federal requirement to file as Single.

Taxpayer Federally files HoH, but the household is not in the state. The state will usually not allow HoH filing, but will require filing a part-year or non-resident return as Single.

I'm sure there are other cases, even disregarding different definitions of "marriage".

Thanks for that, Arthur. I know the fed stuff pretty well, but having lived in the other Washington all my life, I have never filed a State tax return. I nearly had to file one once because I was on a task force in Georgia for a month, but just managed to avoid it, barely. It is my profound wish to grow old and die without ever having to file State.

[Arthur Rubin]

During my working career, I've lived in Indiana, California, and Arizona. All with state taxes, although I was a child when living in Indiana, so I didn't have to file taxes in Indiana; my parents filed the returns.

[AndyK]

Just to throw a little more gasoline on the fire:

Before I retired and relocated to the sovereign state of South Carolina, I was a resident of Maryland.

Both Maryland and South Carolina have income taxes, so I was forced to file two state returns for the year in which I was a part-year resident of each state. In addition, (having just sold my home in Maryland) I will have to file two state returns for tax year 2013.

Now, let's hypothicate (and doNOT mention this to my wife) that I was a partner in a same-sex marriage. This partnership was officiated in Maryland, which recognizes such relationships.

South Carolina, however, does not permit same-sex marriages nor does it recognize such marriages which took place, legally, in other states.

Take a few moments and ponder the convoluted paths which I would have to follow to file a same-sex MFJ fedral and Maryland return and a God-only-knows-what return in South Carolina (which bases its return on the Federal filing).

It appears that I would have to prepare and file Federal and Maryland returns as MFJ and THEN have to prepare another Federal return (but not file it) as Single to provide the basis for my South Carolina return.

EXCEPT, South Carolina requires that its return be based on what WAS filed as a Federal return.

Either my head explodes or I contact ACLU to become a test case opposing South Carolina's treatment of legitimate, out-of-state, same-sex marriages.

[notorial dissent]

Either my head explodes or I contact ACLU to become a test case opposing South Carolina's treatment of legitimate, out-of-state, same-sex marriages.

I think this is the better, and certainly more entertaining solution, head explosions are such nasty messes to clean up, and always leave a slimy residue, while sicking the ACLU on SC for violation of full faith and credit, and what ever else they can think sounds like a lot more fun all things considered.

[Kestrel]

It won't be terribly difficult for South Carolina to amend their laws to deal with a handful of same-sex couples.

I doubt that same-sex marriage issues will be any more convoluted than the mess which ensues when male-female spouses are living apart but not yet divorced, and are residents of different states. If you want some real fun make one of the states a community property state. When it comes to division of income on separate returns, the IRS defers to the community/separate property laws of the state(s) where the taxpayers reside. Yeah, we COULD choose Married Filing Separately on our federal return, but how can we reconcile the community property laws in State A which require the spouses to split their combined incomes 50-50, and the separate property laws in State B which require each spouse to declare and pay tax on 100% of his/her own income? It just doesn't fly, so we are pretty much forced to file the federal return MFJ like it or not. The state returns get filed as part-year-resident since there is no state return filing status called "he's ours but she's theirs."

[Arthur Rubin]

(To both Kestral and AndyK)

To: AndyK.

What's Mrs. K's E-mail address again?
I'm sure that SC will figure out what needs to be done by the filing deadline in April. I don't have much confidence that it will be done much before that. (E-filing may not be possible for such taxpayers.)

To: notorial dissent
I think there's already a suit against DOMA section 2 (state recognition of marriage) in the courts. Head explosions are so messy, though.

To: kestrel
This is probably the first time a (retroactive) Federal law change created a situation which affected Federal filing status but not state filing status. All states have income adjustments, but not all have filing status

[AndyK]

To: AndyK.

What's Mrs. K's E-mail address again?
Just contact the South Carolina Department of Revenue. I'm sure they will be happy to share it, as they did with a few thousand a couple of years ago.

I'm sure that SC will figure out what needs to be done by the filing deadline in April. I don't have much confidence that it will be done much before that. (E-filing may not be possible for such taxpayers.)

I'm glad you have confidence that the SC Legislative and Executive branches will be able to figure this out and fix it.

Perhaps they'll address it after they figure out how to fund the schools, highway repairs, and the states unfunded pension deficit.

But, first they have to accept that such marriages exist -- a very large step for SC mentality.

[notorial dissent]

Nobody said growth wasn't painful, and laziness is generally expensive in both the long and short run.

Actually, since there is money involved, they will probably move more expeditiously than they would about little things like "schools, highway repairs, and the states unfunded pension deficit" as possible to avoid losing a dime.

[Duke2Earl]

You folks had it easy (just kidding). Imagine for a minute being a partner in a Big 4 national accounting firm. Every year there were 38 state tax returns and several city returns, not to mention the foreign taxes from the other countries we did business in. The firm did help. They had negotiated with many states to allow them to file an aggregate return on behalf on nonresident partners. The problem with that was that like any approximate substitute for a real return, you always ended up paying more than you would have if you had actually filed a nonresident return. However, if you lived in a State where you could credit out of state tax payments against your in-state liability it probably washed out. But some of the biggest states would not play so I ended up filing myself in Virginia (home), New York, and California. I pity those who live in California, their return is a nightmare, worst of all returns, including the Federal.

The firm just gave you a report that stated what they had paid on your behalf in all the other states. Yes, I took an out of state tax credit against my Virginia state liability and each year when I filed, I included a copy of the report sent to me by the firm. And every year like clockwork, in June or July, I got a letter from Richmond saying I couldn't claim the out of state credit without including full copies of the out of state returns. And then we proceeded to the annual exchange of letters and phone calls in which I explained that I didn't have those returns (and in fact, if they had just read the report, it said that I didn't have copies of the aggregate returns). And then each year I had to explain what a aggregate return was and how it applied to me and in fact, Virginia allowed exactly the same aggregate returns for partners in my firm who weren't resident in Virginia. And by September or so we finally figured it out. Each and every year for over 25 years. And they did the same thing with all my other partners who lived in Virginia. You think they could have included a note in the return. But I guess they figured that if they harassed us enough some of us might give up. As it was annually several thousand dollars, I wasn't about to give up. Besides after a few years I basically just sent them copies of the letters I had sent them the previous year.

As much as anything else simply not having to go through this every year has been a great joy since I retired.

I pity the poor folks at the firm's national headquarters who will now have to negotiate with all those states on how to handle this DOMA issue on the aggregate returns. Good luck and more power to them.