The National Taxpayer Advocate, Nina E. Olson, has released her 2010 Report to Congress. Included in her list of Most Serious Problems is a six page discussion of the tax problems faced by same-sex Registered Domestic Partners.
Most Serious Problem #15, which can be found at page 127 of this document, is entitled: “State Domestic Partnership Laws Present Unanswered Federal Tax Questions.” The report describes a number of specific problems that same-sex couples face because of uncertainties in the tax law, as applied to their families. The real problem is that tax law has not kept up with the continuing shift in state domestic relations law. There are now at least 15 states that either recognize same-sex marriage or some alternative relationship that is either the equivalent of marriage or very close to it. The fact that state law imposes real rights and responsibilities on the basis of the relationship is something that tax law has always taken into account in structuring various tax rules. But with DOMA on the books the IRS is not free to extend these specific rules to same-sex spouses or partners.
The clearest solution to the current state of affairs would be a repeal of DOMA. The president claims to back repeal, but at the same time his Justice Department is defending the law in federal court. The case is before the Court of Appeals for the 1st Circuit and the brief in support of DOMA was filed on Thursday.
In the meantime there are hundreds of thousands of same-sex couples who must file tax returns by April 15. As the Taxpayer Advocate Report points out, these taxpayers must take positions without actually knowing what the law is. When will the IRS recognize a parent-child relationship involving a same-sex couple? Under the community property income-splitting rules, will dependency status be determined on the basis of individual earnings or only after allocating all community income equally between the partners? Since the lower court opinion in the current DOMA appeal to the 1st Circuit held DOMA was unconstitutional, is that sufficient authority for same-sex married couples to claim protection under statutes and regulations that refer to spouses? Which taxpayer in the family is entitled to claim the many child tax benefits and education tax benefits that are intended to help families with children? DOMA will not allow recognition of the marriage, but should it be construed to deny children in same-sex-couple families the economic and educational support that other children receive through the tax code?
The Taxpayer Advocate calls on the IRS to issue public guidance on these important issues. The IRS response (you should read the report to get the full content of the response) basically says: Because of DOMA our hands are tied. And because the state laws vary so much we cannot provide public guidance that would be uniform for large numbers of taxpayers. We will continue to provide private guidance when taxpayers ask specific questions about their particular situations and their state laws. Great! When asked for a private letter ruling on a particular issue, they will respond. As the Taxpayer Advocate points out, this process can be expensive, perhaps costing many thousands of dollars. Since so many of these issues affect low to medium income families with children, they are not likely to have the wherewithal to make individual requests for guidance. The report concludes: “[I]t is a basic responsibility of government to provide taxpayers with sufficient guidance to enable them to comply with the law.” Right on! And thank you to Nina Olson and her staff at the Taxpayer Advocate Service.
