We have at least 8 U.S. Senators on our side, urging the IRS to do something to help same-sex couples in recognition states file their tax returns correctly without the threat of penalties. Senators Murray, Cantwell, Feinstein, Boxer, Whitehouse, Leahy, Harkin and Merkley signed a public letter urging Commissioner Shulman to do something to fix the current problems that same-sex couples are facing as they file their tax returns. Read the letter here.
Tax return season is over for most Americans. But many same-sex couples in California, Washington, and Nevada found it impossible to get their taxes done by tax day this April. That is because Registered Domestic Partners RDPs) are not sure exactly how to split their community income and deductions, as required for the first time in 2010. As a result many such taxpayers filed for an extension, hoping to sort it all out by their new due date in October 2011.
RDPs who filed on time are also still embroiled with the IRS, often times because they have been assessed penalties. This happens when all community income is split 50/50 thereby increasing the income of one partner and decreased the income of the other partner. The couple, when considered together, has paid all the required taxes. But our tax law does not consider them together. They are single taxpayers and so each tax return is reviewed separately. One partner will be due a larger than usual refund based on the taxes he paid into the system. The other partner will owe taxes, often sufficient in amount to trigger an automatic penalty. The IRS has said that the penalty in such cases should be abated. But that requires additional correspondence with the IRS, often through a paid tax-return preparer. This additional correspondence creates excess costs to the taxpayers.
In addition taxpayers are struggling with the IRS over who should pay self employment taxes and be given social security credits for the community earnings of a self-employed partner. Most of us think it makes more sense — and is fairer — to allocate such earnings to the earner for purposes of the self employment tax. That way the earner will accrue the appropriate number of credits for social security upon retirement. And that is how wage income is allocated. Even though it is split 50/50 for income tax purposes, the earnings are allocated 100% to the earner for purposes of the social security tax and the social security earnings record. The IRS, however, has informally construed current law to cut the self employed RPD’s earnings in half. The law is sufficiently unclear that the IRS could reasonably construe it the way most RDPs would prefer — in a way that protects the social security retirement income of the self-employed RDP.
As the Senators point out, none of these problems would exist if Congress would repeal DOMA. Then the IRS would be free to construe tax laws that apply to married couples to apply also to same-sex couples who are either married or treated as married by their states of residence. But even with DOMA on the books, it is possible to construe basic tax principles in a way that recognizes the reality of couples who are married or in a state-recognized relationship that carries the same benefits and burdens of marriage. The National Taxpayer Advocate has called for the IRS to clarify how basic principles apply to such couples. Thus far, the IRS has remained silent on the issue. Will Commissioner Shulman listen to the Senate Eight? I hope so.
Thanks to Deb Kinney for her tireless work with these Senators. Job well done!
