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Thursday, March 3, 2011

Cain: Advice for Same-Sex Couples Filing Their 2010 Tax Returns

Following up on my prior post, The Tax Implications of Obama's Abandonment of the Defense of Marriage Act (Feb. 23, 2011):  Patricia A. Cain (Santa Clara) offers her thoughts on how same-sex couples should file their 2010 tax returns in light of the DOJ's action:

Prof. Patricia Cain, Santa Clara University School of Law, said she is advising same-sex married couples who would benefit from joint filing to file original returns as "single" or "head of household" and then file amended tax returns using Forms 1040X as "married filing jointly," providing an explanation in the appropriate place on the form. Not only will that allow the taxpayers to take their case to court if their refund is denied or potentially speed up a refund if -- in the meantime -- section 3 of DOMA is held unconstitutional, but Cain said she knows of individuals in same-sex marriages in Oregon and California who have filed amended returns jointly and actually received refunds.

"I don't think anybody is looking very closely," Cain said. "The computer says everything checks out; they don't have gender-coded 1040s."

Cain said she thinks someone in the government should be considering the potential transition issues. "If all of a sudden [section 3 of DOMA] is struck down, then it means it was never constitutional," Cain said. "Only the people who will benefit will file an amended return. No one else will, and so it will be a revenue loss for the government." That is so even though the Congressional Budget Office found in 2004 that recognizing same-sex married couples as married for tax purposes would result in a net increase in federal revenue. [CBO, The Potential Budgetary Impact of Recognizing Same-Sex Marriages (June 21, 2004).]

Cain said she believes that the Supreme Court will take up the issue and that Holder's announcement will fast-track one of the DOMA cases to the Court. The most likely candidate would be Gill because it is the farthest along, Cain said.

Amy S. Elliott, IRS's Definition of Marriage -- Where It Stands Now, 2011 TNT 42-3 (Mar. 3, 2011). See also Patricia Cain, DOMA and the Internal Revenue Code, 84 Chi-Kent L. Rev. 481 (2009).

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Comments

"I don't think anybody is looking very closely," Cain said.

Great tax advice (sarcasm) -- Go ahead and claim it. The Service won't catch it.

Posted by: Woody | Mar 3, 2011 6:35:59 PM

Agree with Woody

The comment on filing and then amending to change status is pretty rediculous advice from anyone, much less a Tax Professor. Good Grief!

If you feel you are entitled to file jointly, file jointly. The return will either be examined for marital status (very unlikely, would probably come about as a result of some other issue that is being examined) or it won't. If it is, make your case. I feel a reasonable case can be made using the analogy to Common Law Marriage which the IRS recognizes in some situations. If you lose, it is not a jailing offense.

Posted by: Sid (real one) | Mar 3, 2011 6:50:41 PM

". . . file original returns as 'single' or 'head of household' and then file amended tax returns using Forms 1040X as 'married filing jointly,' providing an explanation in the appropriate place on the form. Not only will that allow the taxpayers to take their case to court if their refund is denied or potentially speed up a refund . . ." Huh? You have to 'splain this one to me, 'cause I don't get it!

If the taxpayers file using "joint" status and the Service denies their claim for refund or issues a stat notice, they can go to court. I don't see how filing single or head of household, followed by an amended return would expedite anything.

Help me out prof.

Posted by: Publius Novus | Mar 4, 2011 8:30:35 AM

The 2007 statute will be up on most people pretty soon. That is who has to be really concerned about filing amended returns. In CCA 201021050 which requires domestic partners to split income, the service is allowing amended returns for open years but not requiring them. (I wonder on that one what they will do if one partner amends and not the other). Gill v OPM is probably reasonable basis for filing joint return, but you would still have interest to deal with making the amended return a decent strategy.

The other thing I like to always point out is that joint returns mean joint and several liability.

http://riles52.blogspot.com/2011/02/amended-returns-due-to-doma-case-what.html

Posted by: Peter Reilly | Mar 4, 2011 11:19:17 AM

Did DOMA really prevent you from doing this before and will its loss in court actually allow you to claim head of household if you have not been formally married in any state ?
I don't think this is very good advise ...

Posted by: Jeff | Mar 4, 2011 11:33:22 AM

Our "same-sex" friends might want to remember one little fact: the IRS is not God.

Posted by: Jeff H | Mar 4, 2011 11:58:10 AM

If you are gay, you can also claim the $1500 tax credit for energy improvements to your main home; whether you made those improvements or not.
No one looks that closely, and the computer can't tell if your house has new windows, or a new furnace or water heater anyway.

Posted by: Diggs | Mar 4, 2011 12:21:50 PM

The purpose of filing a return as single or HoH and then amending is rather simple. If you just file as "married" then one or both filiers may later be determined as not filing a tax return, subject to penalities, and possibly losing the benefit of the statute of limiations. Filing an amended returns allows you to get the benefits of filing married if DOMA is overtunred, but eliminates the downside risk in case you lose your position.

Posted by: Think38 | Mar 4, 2011 12:56:01 PM

So if same-sex couples can file jointly even if they are not married under the law in their state, should two-sex couples file jointly even if they are not married under the the law of their state?

Jeff H: I assume you wrote that tongue-in-cheek. If not, I would simply refer you to the oath printed down by the signature line on form 1040.

Posted by: Jerry | Mar 4, 2011 5:30:58 PM

I struggle to see how anyone would benefit from filing jointly rather than filing singly unless one party has no income at all and wants to be claimed as a dependent. Otherwise, an intersting theory, but don't try at home unless you like paying more taxes. Yes, everyone should try to have the marraige penalty imposed on themselves.

Posted by: Halpap | Mar 5, 2011 5:30:35 PM

There are a few situations besides income disparity where filing a joint return could be beneficial. For example one member of the couple might have suspended capital losses or passive losses that the other could use. You really have to run the numbers

Posted by: Peter Reilly | Mar 9, 2011 2:28:02 PM