Get ready, Internal Revenue Service. You are about to be swamped with a lot of new and amended tax returns.
The Supreme Court of the United States ruled Wednesday that Section 3 of the federal Defense of Marriage Act, or DOMA, is illegal because it denies same-sex couples equal protection under the law.
The 50-plus page 5-4 majority opinion written by Justice Anthony Kennedy is much broader than what many judicial scholars had expected. Basically, the country’s highest court has said that marriage is marriage. As long as it’s legal, then the federal government must recognize it.
The ruling will affect by some counts more than 1,000 federal laws in which marriage is considered.
But it was a tax matter, the special estate tax consideration provided the surviving spouse when it comes to inheriting property, that ended Defense of Marriage Act.
Estate tax challenge to DOMA
Edith Windsor filed suit against the federal government because she was required to pay more than $363,000 in federal estate taxes after the death of her wife, Thea Spyer. Windsor and Spyer were legally married in Toronto, Canada, in 2007 and lived in New York, which recognizes same-sex marriages.
When Spyer died in 2009, Windsor was not able to take advantage of estate tax laws that allow spouses to pass property tax-free to their widows or widowers. If Windsor had been married to a man, she would have owed no federal estate tax.
The Supreme Court of the United States agreed that Windsor had been discriminated against. She will be getting a nice, big refund check from the IRS.
As for other same-sex couples nationwide, what does the Supreme Court ruling mean? They now can file joint federal tax returns and make estate plans just like their married heterosexual peers.
Of course, they must be married and live in a state that recognizes those marriages. They are Connecticut, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, Washington and the District of Columbia. It also will apply to couples who can marry in Delaware beginning July 1, and in Minnesota and Rhode Island, effective Aug. 1 in both those states.
Legal experts are parsing the court’s ruling on California’s proposition 8 as to what that means to same-sex marriages in the Golden State.
The wide scope of the Supreme Court’s DOMA decision, however, is likely to prompt lawsuits in states that reject same-sex marriage by couples seeking to be allowed to marry in those states, too.
Common law filing option?
But pending those expected court proceedings, one Texas tax law professor and CPA says couples who live in community property states where same-sex marriage is not legal might have a way to take advantage now of the DOMA ruling.
John J. Masselli, Ph.D. and Haskell Taylor Professor of Taxation at the Jerry S. Rawls College of Business at Texas Tech University, says that same-sex couples that live in common law marriage states should consider filing amended and future tax returns reflecting that status at both the federal and, if applicable, state levels.
According to the National Conference of State Legislatures, nine states — Alabama, Colorado, Kansas, Rhode Island, South Carolina, Iowa, Montana, Oklahoma and Texas — and the District of Columbia recognize common-law marriages. In addition, five states — Georgia, Idaho, Ohio, Oklahoma and Pennsylvania — have “grandfathered” common-law marriage, allowing those established before a certain date to be recognized.
Under the Texas common law marriage statute, says Masselli, who is gay and has been with his partner for 17 years, all that is required is that a couple hold itself out publicly as married.
There is no state income tax in Texas, but a common law married couple, whether same-sex or heterosexual, could then file a joint federal return under Masselli’s scenario.
Would common-law marriage states, many of which are opposed to same-sex marriage, oppose such status claims at the state tax level? Probably.
But it’s something to consider if your tax bill would be smaller as married filers and you’re willing to fight.
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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and a co-author of the e-book “Future Millionaires’ Guidebook.”