Gay Couples Get Equal Tax Treatment

Postby Wizard CaT » Fri Jun 04, 2010 11:40 pm

http://online.wsj.com/article/SB1000142 ... %3Darticle

LAURA MECKLER wrote:The Internal Revenue Service has ruled that same-sex couples must be treated the same as heterosexual couples under a feature of California tax law. Advocates for the change say it is the first time the agency has acknowledged gay couples as a unit for tax purposes.

The change reverses a 2006 IRS ruling and opens a tax benefit to many same-sex couples that wasn't available before. It may affect couples in Nevada and Washington state, as well.

Specifically, the agency said nearly 58,000 couples who are registered as domestic partners in California must combine their income and each report half of it on their separate tax returns. Same-sex couples account for an estimated 95% of the state's domestic partnerships; partnership status is also available to heterosexual couples in which one partner is over age 62.

"For the first time ever, I'm able to file federal taxes that, in a small way, acknowledges what's going on in my relationship," said Eric Rey of Berkeley, Calif. Mr. Rey and his partner requested the IRS ruling, first during the Bush administration and again this year.

The pair wed during a brief window when same-sex marriage was legal in California, but the issue arises because the men are registered as domestic partners. Same-sex couples, even if they are legally married in their home states, may not file joint federal tax returns. The federal Defense of Marriage Act, passed in 1996, defines marriage as between one man and one woman and bars federal agencies from interpreting it otherwise.

But the tax issue is more complicated in California, one of nine states with community-property rules. Those rules require married couples to treat all income as joint property for a variety of purposes. If they are filing taxes separately, the Supreme Court has said they must combine their incomes together and then divide the sum equally.

Beginning in 2005, California law directed that these same community property rules apply to registered domestic partners.

Applying this rule to federal taxes offers clear tax benefits for people such as Mr. Rey—an executive who said he earns much more than his partner does—because it brings him into a lower tax bracket. In 2007, he said, applying this standard would have cut his federal tax liability in half and more than doubled his partner's tax bill. Taken together, it would have saved them about $7,000, he said.

In 2005, the pair asked the IRS for clarification as to how they should file their taxes. The next year, the agency issued a memorandum stating that California domestic partners shouldn't apply the community-property standard to federal taxes because the relevant precedent didn't apply "outside the context of a husband and wife."

"The relationship between registered domestic partners under the California Act is not marriage under California law," the agency said.

In 2007, the IRS was less definitive. In a private ruling sought by Mr. Rey and his partner, the agency declined to offer guidance either way.

When President Barack Obama was elected, Mr. Rey's tax attorney, Donald Read, thought they should try again, citing the White House Web site's professed commitment to "equal federal rights" for gay and lesbian couples.

This time, the IRS said these couples not only may, but must, combine and then divide their income for federal tax purposes. It made that point in a new memo issued last month.

Mr. Read said it was the first time the IRS had given equal status to gay couples. IRS representatives wouldn't confirm his statement but couldn't point to any prior comparable decision.

An IRS spokesman said the shift is due to a 2007 change in state law. That change dealt with the way the state calculates income for California taxes. Nevada and Washington state are also community-property states that recognize domestic partnerships, and so couples there may also be affected.

The IRS ruling has detractors. It doesn't appear to square with the Defense of Marriage Act, which bars federal agencies from recognizing same-sex couples, said David Herzig, an expert in tax law at Valparaiso University School of Law. That law, he said, means the IRS should not be recognizing these unions, even if state law directs otherwise.

"We shouldn't be picking and choosing where these rules apply," he said. In passing the federal law, he said, "You made your bed."Mr. Rey credits Mr. Obama's influence for the IRS's shift. "The fundamentals of the legal argument were the same as they had been before," he said. "This time we got a different result."

Write to Laura Meckler at laura.meckler@wsj.com


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Re: Gay Couples Get Equal Tax Treatment

Postby Wizard CaT » Fri Jun 04, 2010 11:45 pm

I realize everyone isn't a tax accountant, or familiar with California's weird ass laws. Basically the IRS is saying if you have a domestic partnership in CA, you need to combine your income and separate it on the Federal tax return. IE: One partner earns 300k while the other earns nothing. One would have reported 300k on their 1040, while the other reports zero. However under the new ruling, they each report 150k on their 1040. This results in a much lower tax bill, and is in compliance with CA's community property laws. They still can't file as MFJ, just as "Single" of course.

It's also in clear violation of DOMA.
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Re: Gay Couples Get Equal Tax Treatment

Postby Ashes » Sun Jun 06, 2010 1:16 pm

Hurray for acknowledging gay marriage on a technicality!
Wizard CaT wrote:It's also in clear violation of DOMA.

Good! Maybe this will provide the impetus for repealing DOMA.
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Re: Gay Couples Get Equal Tax Treatment

Postby draque » Mon Jun 07, 2010 7:15 am

Wizard CaT wrote:It's also in clear violation of DOMA.


It worries me that they would focus on it before focusing on having DOMA repealed. I'm hoping they're planning for a fight that leads to DOMA's repeal, because if they aren't, the new tax law will likely just be stricken down.
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Re: Gay Couples Get Equal Tax Treatment

Postby Idiot Glee » Tue Jun 08, 2010 1:47 am

Full Faith and Credit Clause > DOMA
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Re: Gay Couples Get Equal Tax Treatment

Postby Wizard CaT » Tue Jun 08, 2010 4:58 pm

I'm not defending DOMA mind you. Was just pointing it out.

But in any case, the IRS doesn't make tax law, they are suppose to just collect the income tax under the laws enacted by Congress. They do opinion shop in Courts to get things how they want it though. Actually they tend to ignore the tax court when they get unfavorable decisions as well.
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Re: Gay Couples Get Equal Tax Treatment

Postby Sinosaur » Wed Jul 21, 2010 1:13 am

If you ask me, there's no point to marriage being defined by a government entity aside from the purposes of various legal benefits. In fact, get the fuck out of marriage, that shit's all nebulous and full of religion and I want separation of church and state to hurry the fuck up and get cracking. You can all have fucking civil unions and be happy with it.

Also, we should defend the sanctity of marriage by keeping all those idiots from jumping in and then hopping back out. Those vows said until death did you part, so you fucking man up and get to the finish line one way or the other. Unless you were smart enough to get your own vows written, in which case you're free to go.
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