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  • IRS Flouts the Defense of Marriage Act

    In a series of three letter rulings – here, here,  and here – issued in May, the Internal Revenue Service has reached conclusions that flout the plain meaning of the Defense of Marriage Act (DOMA).

    The rulings involve California’s domestic partnership law, which dates to 1999 and has been expanded by the legislature on several occasions over the past decade. The result of the IRS interpretations is that domestic partners in California and several other states will be treated as the equivalent of married couples for the purpose of assessing their federal income tax liability, a substantial benefit.

    California first adopted its registered domestic partner (RDP) law in 1999. The law made RDP status available to all same-sex couples and to some heterosexual couples, namely those age 62 or over. The inclusion of older heterosexual couples was designed to extend a set of civil and property rights to seniors who choose to cohabit rather than marry because of the prospective penalty of losing some of their social security benefits.

    The California law at first did not affect the state income tax treatment of domestic partners’ earnings, but two later enactments by the General Assembly, in 2003 and 2006, expanded the scope of the law until, effective in 2007, the state tax code allowed RDP’s the same filing status and income-splitting options as a husband and wife. Under the new law, if one person in the domestic partnership earned $50,000 in a given year and the other person earned nothing, the income could be treated as community property so that each filer could report $25,000 in income.

    If applied to the federal income tax code, allowing cohabiting individuals to claim the tax status of married couples, for example, would reduce their income tax liability by $3,000. Enacted by Congress in 1996 and signed into law by President Bill Clinton, DOMA simply states, “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

    In January, 2004 the General Accounting Office supplied the Senate Majority Leader with a letter updating a prior report and identifying 1,138 instances in federal law to which DOMA applied, including federal income tax filing statuses.

    Clearly, the Internal Revenue Service is one of the “various administrative bureaus and agencies of the United States,” and just as clearly DOMA applies to its determination of the meaning of the word “married” as applied to federal income tax filing statuses. The IRS’s decision to “go a-Maying” and ignore DOMA is without legal support. The IRS says in defense of its rulings that “federal law generally respects state property law characterizations and definitions.” This is certainly true – except when federal law specifically bars such characterizations and definitions, which DOMA definitively does.

    The proper ruling for the IRS would have been to maintain the status quo and treat California and other states’ domestic partners as two individuals under the tax code. That was the intent of Congress and preserving legislative intent demands Congressional attention.

    Co-authored by JD Foster.

    Posted in Ongoing Priorities [slideshow_deploy]

    2 Responses to IRS Flouts the Defense of Marriage Act

    1. Diane, Los Angeles says:

      Chuck,

      Your article misses the point. The rulings and current IRS position are well within DOMA. In fact, because of DOMA, traditional married couples will actually draw the short end of this stick – while CA domestic partners will come out economically ahead in most cases.

      Why? Because the income splitting now available to certain domestic partners who reside in community property states will often result in a lower tax liability than a similarly situated straight couple that files a joint tax return. The way to promote fairness in this case – for straight people – would actually be to scrap DOMA and force same-sex couples to file under the same tax laws as married people must obey. Until then, my wife and I will happily accept the tax break we get for being same-sex married in a community property state.

      Let's be clear about this though: the key point is that CA domestic partners earn community property under state law. As a result, same-sex partners are deemed to earn exactly one-half of the couples' earnings. The IRS's decision to permit income splitting reflects its recognition of California's property ownership laws – an issue wholly distinct from marital status or state tax treatment.

      Moreover, you are correct that CA gives domestic partners the same state tax treatment as married couples, but that fact is irrelevant on the federal level and has no bearing on these rulings, nor can it given DOMA.

      To state matters another way: if we view inequities as harmful, then the recent rulings expose the potential for DOMA to harm the straight population. In the absence of DOMA, income splitting might not be permitted to registered domestic partners; instead they would likely be forced to file jointly like their straight counterparts, resulting in greater tax liability. Instead, DOMA requires domestic partners' exclusion from the joint-filing regime. As a result, many registered domestic partners in community property states are now welcome to practice income splitting, which will often lower their taxes considerably as compared to similarly situated straight couples.

      Regards,

      A California Tax Lawyer

    2. Peter Reilly says:

      The IRS follows state law when it comes to the ownership of property. It is an interesting histroy to this as prior to joint returns being allowed residents of community property states got the benefit of income splitting which was much more substantial when rates were higher.

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