For tax year 2010, RDPs and SSM couples in community property states (California, Washington, and Nevada are the only states affected) must file their federal tax returns by splitting community income and deductions. There are substantive and procedural questions that have yet to be clearly answered on how exactly to file these returns. But a recent telephone conference call with IRS National Office Personnel has provided some essential information.
On January 18, I was privileged to be included in a telephonic discussion about the practical issues of how tax return preparers should be filing 2010 community property same sex couple returns. Rich Waterman, CPA, in San Jose, and Kevin Morehead, IRS National Office, were both instrumental in setting up the discussion. Thanks to both of them. I think we are now on a very important step forward in resolving many of the unanswered questions.
The question pressed by most participants was whether it will be possible for RDPs and SSM couples to e-file for 2010. Preparers know that their software, which is updated by regular IRS releases, will not currently allow e-filing for anyone who tries to claim community income splitting unless they are married in the eyes of the IRS and thus filing as MFS (married filing separately). The stupid result of DOMA is that same-sex couples, married or registered, cannot be treated the same as married taxpayers under any federal law. And so we now require a whole new set of tax rules to cover such taxpayers.
First, I think this DOMA result is stupid because it requires the IRS to set up an entirely new set of reporting rules for people who are exactly situated the same as opposite-sex married couples. The IRS must follow state property law and state property law requires the IRS to view community income as split equally between the spouses or partners. So now that three states have applied community property to registered (and, in California, married) same-sex couples, the IRS must follow the rule of law (i.e., split income and deductions). And, as a result of DOMA, that means they must set up an entirely separate tax regime to deal with these same-sex couples and cannot rely on the statutory and agency rules that apply to other community property spouses.
Second, the DOMA result is wasteful. The IRS has more important things to do than to figure out how to apply the same rules to two different communities of taxpayers – the gay taxpayers and the nongay taxpayers – when they are otherwise not merely “similarly situated,” but, under state law, in fact situated exactly the same.
The IRS is not responsible for DOMA. Congress is. And I, for one, after this conversation with IRS personnel, can tell you that there are some good folks at the IRS who are are trying as best they can to work out the rules that will apply to us under this DOMA regime. They won’t say it, but it is clear to me that their jobs would be easier if DOMA went away.
So, can you e-file? Probably. But because of the way the system is set up, e-filing may also generate computer responses to your tax return that question things like why the withholding you reported on your return is different from the IRS records. IRS records, of course, contain only the withholding amount for the Social Security number on the W-2 of the earner. Community income splitting rules require that the withholding amount be split 50/50. This is a problem for opposite-sex married couples in community property states who want to report separately as well. But it is an even bigger problem for same-sex couples because there is no way to electronically report the social security number of the person to whom you are married or with whom you are registered as a partner.
As a result, many professional return preparers are not willing to risk the e-file option because their clients do not want to have to answer to the IRS about the computer-detected differences. For individuals who feel secure enough to file their own returns under this new regime, the important news is that you can e-file. Not quite yet, though. But maybe by mid-February, once IRS Release #4 has been absorbed by the tax software folks. For more information about this, and for the full notes of the telephonic meeting, see here.
There are a number of upcoming presentations on these issues by CPAs in the Bay Area.
Rich Waterman has a seminar scheduled for Tues day, January 25. See here for details.
Karen Stogdill has a number of upcoming seminars scheduled. See here for details.
