In a landmark ruling, the Supreme Court recently ruled a portion of the Defense of Marriage Act (DOMA) unconstitutional.
As a result of this ruling, same-sex couples around the country can file their federal tax returns jointly. Or can they?
The DOMA ruling basically states that the federal government has to respect the marriages performed in various states. This means that thousands of federal benefits are now open to same-sex couples, and they can even take advantage of some of the tax benefits that might be available to joint filers.
However, it’s not that cut and dry. There are still plenty of questions that need to be answered, and Federal agencies — including the IRS — are scrambling to figure out how to best implement new policies. Here are some of the tax questions left unanswered by the DOMA ruling:
State of Celebration vs. State of Residency
The number of states that recognize same-sex unions is barely into the double digits. One of the questions that the IRS has to grapple with is whether or not a marriage will be recognized, for tax purposes, if it was legalized in a state that allows it, but the taxpayers live in a state that doesn’t.
When a state legalizes gay marriage, there is usually an influx of couples from surrounding states, eager to tie the knot. So, while the marriage might be legal in the state in which it was celebrated, once they return home, it might not be legal.
Another issue might arise when a same-sex couple lives in a state where the marriage is legal, and files jointly as a result. After years of joint filing, the couple might move to a state where the union isn’t recognized. Does that mean that now the couple can’t file taxes jointly?
The IRS has to decide whether it will recognize a legal same-sex marriage no matter what state the couple lives in, or whether filing status will be determined based entirely on residency. There is no real statute governing this issue, but decades of practice has led the IRS to base its filing status definitions on residency. But this thorny issue might prompt a change to the long-held practice.
What about Civil Unions?
Another question that crops up has to do with the fact that, right now, joint filers are supposed to be married. Some of the states that recognize same-sex unions don’t actually call it “marriage.” It might be a “domestic partnership” or a “civil union.” The IRS will need to figure out how it will handle these cases. If you have a legal civil union, is that the same thing as being married? Will the IRS still accept your joint filing? That remains to be seen.
Right now is a time of reflection for the IRS. With the joint filing status, things can get a little muddled. But, regardless of what the IRS decides, these are questions that need to be answered fast. We’re already past the halfway point of the year, and that means that tax season is closer than we might think.