Tips for Gay Couples Considering Filing Tax Return As Married

If you are a gay couple, legally married in a state or country that performs such marriages, can you file your federal income tax return as married even if the federal government refuses to acknowledge your marriage?

General Answer: Because the Defense of Marriage Act (DOMA) defines marriage for federal tax purposes as excluding same-sex couples, only opposite-sex couples can file as married.

On November 16, 2011 the IRS reaffirmed its responsibility to apply the tax law in accord with DOMA. It issued a set of Questions and Answers for Registered Domestic Partners. Question 2 raised the joint filing issue. 

Q-2: Can registered domestic partners or same-sex spouses whose marriage is recognized under state law file federal tax returns using a married filing jointly or married filing separately status?

A-2: No. Registered domestic partners cannot file using a married filing separately or jointly filing status, because they are not spouses as defined by federal law. Likewise, same-sex partners who are married under state law may not file using a married filing separately or jointly filing status because federal law does not treat same-sex partners as spouses.

The IRS position on DOMA is under attack. GLAD has filed suit in federal district court in Massachusetts, claiming that DOMA is unconstitutional. Their lawsuit includes a number of plaintiffs who want to file their tax returns as married rather than single.

The decision inGill v. Office of Personnel Management, 699 F.Supp.2d 374 (D.Mass., 2010), was handed down in 2010 by a federal court in Massachusetts. It held that DOMA was unconstitutional. Another case, brought by the Commonwealth of Massachusetts also held that DOMA was unconstitutional. Both of these cases are on appeal before the First Circuit.

In 2011, a bankruptcy court in California ruled that DOMA was unconstitutional as applied to bankruptcy claims. That decision was signed by 20 judges and the US Trustee decided not to appeal. As a result, same-sex married couples are recognized as spouses for purposes of bankruptcy law.

President Obama and Attorney General Holder have stated publicly that they do not believe that DOMA is constitutional. The Holder opinion on this matter has been published and should serve as a reasonable attorney opinion, based on existing authority, that DOMA is unconstitutional. Still, President Obama has made it clear that he expects his agencies (including the IRS) to enforce DOMA until the US Supreme Court finally strikes it down.

Tax advisers in the past have warned same-sex married couples not to file as married (either jointly or separately) because of the possible imposition of penalties for doing so. The recent litigation attacking DOMA has led some to question whether joint-filing might be a reasonable position, despite President Obama’s pronouncement that agencies should continue to enforce DOMA. In other words, if the Attorney General of the United States has taken the position that DOMA is unconstitutional, why shouldn’t taxpayers be allowed to rely on that opinion and file as though DOMA were not in force?

All we can say is: that is a very good question. Still, because the President says that DOMA should be applied by agencies, we know that under current IRS rules, same-sex married couples will not be entitled to file their federal tax returns as married. Yet the federal return requires you to swear under penalties of perjury that all statements in the return are true. If you object to signing this statement on a return in which you have been forced by the federal government to lie about your marital status, there are some things you can do.

One option is to put an asterisk by the single box and at the bottom of the form indicate that you are only single under DOMA. Another option is to include an attachment to your return, similar to the following:

Sample Attachment to Federal Tax Return Affirming Marriage

Name of taxpayer:
Social Security #:

The above named taxpayer married a person of his/her same sex in [place] in [year]. The taxpayer has not filed this return as “married” (either jointly or separately) solely because the Defense of Marriage Act (DOMA) defines marriage as a legal union between a man and a woman. By filing as “single,” the taxpayer is in no way disavowing his/her marriage.

Another option, which some tax advisers support, is that you might be able to file a joint return if you not only had a sincere belief that DOMA was unconstitutional, but also had a reasonable legal opinion to that effect. Section 6664(c) of the Internal Revenue Code provides that “no penalty shall be imposed [for the underpayment of tax] if … there was a reasonable cause for [the underpayment] and the taxpayer acted in good faith….”

Attorney General Holder’s opinion found here [http://www.justice.gov/opa/pr/2011/February/11-ag-223.html] concludes that DOMA is unconstitutional. It would seem to provide a reasonable legal opinion for taxpayers to rely on. However, we know, despite Holder’s opinion, that the IRS will not recognize same-sex spouses as married at this time. This is a unique situation. It can be argued that taxpayers have a reasonable basis, based on substantial authority, that they are entitled to file jointly because DOMA is unconstitutional, even though they know that the IRS will not recognize the right to file jointly. How much weight should be put on the IRS refusal to recognize same-sex marriages under DOMA in light of the AG’s opinion that DOMA is unconstitutional? Under the tax law, it is the taxpayer who makes the decision about how to file and that decision is protected from penalty if it is based on good faith and rational basis.

An additional consideration is that there is no penalty imposed unless the taxpayer’s reporting position resulted in an under-reporting of the tax liability. Some married taxpayers will actually end up paying higher taxes if they file as married filing jointly than if they file as two single taxpayer (or as one single taxpayer and one Head of Household).  In this case, there can be no penalty for choosing to file jointly because you would not owe any extra tax if you filed as unmarried. Some married taxpayers are electing to file jointly at the federal level even if it costs them slightly higher taxes because: (1) it is easier than filing separately; (2) if they file a joint return at the state level, the joint federal return serves as the basis for the state return; and (3) they are in fact married and proud of that fact.

Should you file jointly? That is up to you and your personal tax adviser.

Can you do so without penalty? Yes, if by filing jointly you do not reduce your tax liability.

Can you rely on the reasonable cause/good faith exemption from penalties? Perhaps, although there is no clear authority on this question because of the uniqueness of the current situation. Is it reasonable to file jointly when you know the IRS does not recognize your marriage? Perhaps, if you are prepared to take them to court over the issue in the event they challenge you on filing status. But we also know that the IRS has no way to know that you are ignoring DOMA unless you tell them. There is nothing on the tax return itself that would suggest you are not married for federal tax purposes because gender is not registered on the return. So perhaps the more reasonable approach would be to disclose your reporting position.

Normally one would file a Form 8275 to indicate to the IRS that the position taken is contrary to some rule. Here the position taken is contrary to a statute. There is no IRS rule or regulation that adopts DOMA. But the statute is clearly a “rule” in the normal sense of things. Thus the rule you would be disagreeing with would be 1 USC §7 (DOMA). And the reason you would be disagreeing with it would be because you believe it is unconstitutional based on the letter from AG Holder and the authorities cited therein.

Additionally, if joint filing does reduce your overall tax liability, it is unclear how the IRS would assess the penalty. The penalty for an underpayment for disregard of a rule is calculated based on a percentage of the underpayment. The amount of the penalty is an additional 20% of the underpaid tax. It isn’t clear who this penalty would be assessed against in the case of two taxpayers who filed jointly rather than as two single people.

For example, if A, filing as single, would have owed $3,000 in tax and B, filing as single would have owed $31,000, but filing jointly, together they owe only $33,000, then the underpayment that results from disregard of the statute is $1,000. Presumably the $1,000 penalty would be levied only against B, the higher of the two earners.

How can you affirm your marital status, object to DOMA, file a joint return, and not be subject to penalties? Here are the safest possibilities:

  • File two single returns (including the attachment affirming the marriage) and then file an amended return, filing jointly. The amended return is a 1040X. This is what the plaintiffs in the GLAD case did. Once the IRS rejects the amended return, or if six months passes and they do nothing, the taxpayers who file an amended return have the right to file suit in federal district court claiming the refund. The amended return serves as a claim for refund and it must be filed within three years of when you filed the return for that year (April 15th is the operative date if you filed early).

The basis of the claim for refund is that you are legally married in the state of your marriage, that the federal government should recognize that marriage, and that DOMA is unconstitutional. This option would avoid penalties because your original return would be filed according to the statute.

The problem with this option is that if the IRS does reject the amended return you have to consider filing suit in federal district court to obtain the refund. Suits for refunds must be filed within two years of the denial of the claim. This time period can be extended with the consent of the Secretary of the Treasury.

  • File a joint return with the Form 8275 disclosing your position. Couples should consult with their tax return professionals before doing this because if the IRS refuses to accept the return you will have to respond to their inquiries.
  • You might consider filing separate returns as single and then filing a “protective” claim for refund. This process is similar to option one above. You would file a 1040X that would serve as the claim for refund. (If the claim involves taxes other than income taxes – e.g., a gift or estate tax claim based on the marital deduction — you would use I.R.S. Form 843 to make the claim.)

There is no specific process for making the claim a “protective one” rather than a claim requesting an immediate refund. Some tax practitioners suggest marking the 1040X at the top with the words “PROTECTIVE CLAIM FOR REFUND” and including a document with something like the following language:

This protective claim for refund is filed to preserve the taxpayers’ right to a refund for the calendar year _____, including statutory interest thereon, which may result upon final disposition of the issues raised in cases now being litigated in the federal courts challenging the constitutionality of DOMA, including Gill v. Office of Personnel Management, 699 F.Supp.2d 374 (D.Mass., 2010)(holding DOMA unconstitutional). It is requested that no action be taken regarding this protective claim for refund until this litigation is concluded. If DOMA is ultimately ruled unconstitutional, taxpayers will be entitled to a refund based on joint filing status. The purpose of this protective claim for refund is to prevent the three year statute from running before this matter is ultimately concluded.

See, e.g., Burgess J.W. Raby and William L. Raby, Protecting the Protective Refund Claim, Tax Notes Today (April 24, 2003).

Clearly indicating that you intend for the refund claim to be a protective one should prevent the IRS from acting on the claim. There are no time limits that require IRS action within a specific time period, but there is the three year time limit for taxpayers who want to file a claim for refund. If DOMA is struck down in 2014, before April 15, for example, and assuming the decision striking it down is retroactive, you would only be able file amended joint returns for the open years – most likely 2013, 2012, 2011 and 2010. If you have been married longer than that and filing jointly is a benefit to you, now might be the time to think about filing a protective claim for 2009, and 2008 because those years are still open (although the window for 2008 will close on April 15, 2012 for most taxpayers). Again, consult your tax professional for advice about this.

We consulted with Professor Patricia A. Cain, Santa Clara Law School in preparing this tax tip. She said that she knew some same-sex couples in several different states who had filed joint returns and received refunds. “It’s because the returns are handled by machines,” she said, adding that the 1040 forms don’t have any gender markers on them. “That doesn’t mean they won’t be audited sometime. But honestly, I think the I.R.S. has bigger fish to fry than figuring out whether same-sex couples are filing correctly when they file jointly.”

Taxpayers who don’t pay the proper amount of tax will be levied a 20 percent penalty on top of the amount of tax owed. An I.R.S. spokeswoman said the agency followed the federal Marriage Act and declined further comment.

This memo was prepared in consultation with Patricia Cain, a professor at Santa Clara Law and a national expert in federal tax law and sexuality and the law. 

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