Many states recognize formally created relatioships of same-sex couples and treat them the same as spouses under their divorce laws. Some states recognize marriage (e.g., Massachusetts, Iowa). Some recognize Registered Domestic Partnerships or RDPs (e.g., California, Washington, Nevada, Oregon). And some recognize civil unions (e.g., New Jersey). If the state imposes alimony on a divorcing couple in any of these states, how will federal income tax law treat those alimony payments?
We know that same-sex couples cannot rely on federal statutes that apply only to spouses and ex-spouses. That is the required result under DOMA. That means there is absolutely no way to structure alimony payments so that they are taxable to the payee and deductible by the payor. See IRC s71 and s215 (applicable to spouses). But the non-availability of statutory rules does not answer the question. The question is: what is the law absent special statutory provisions?
Prior to 1942 there were no statutes covering taxation of alimony. As a result, the question of how to tax such payments was analyzed under general principles of tax law. The courts, relying on a 1917 U.S. Supreme Court case, Gould v Gould, determined that alimony was not taxable to the payee (nor presumably deductible by the payor, although that was not at issue in the case). Is Gould v Gould still good law? If so, can it be applied to same-sex couples who are treated the same as spouses under state law? I think so. See my white paper, "Alimony and the Income Tax."
Of course, I may be wrong. There is insufficient recent case law (nothing since the 1970s) that can be cited in support of my conclusion. But there are strong arguments in support of applying the Gould rule to same-sex couples. Not to do so would result in double taxable of a divorced same-sex couple by taxing both the payor (no deduction) and the payee on a support payment that, if it had been made during the marriage or partnership, would not be taxable. Divorce creates new economic burdens for everyone. Increasing that burden by imposing a double tax would unfairly increase those burdens.
