| . |
partners. Same-sex couples, even if they are legally married in their home
states, may not file joint federal tax returns. The federal Defense of Marriage
Act, passed in 1996, defines marriage as between one man and one woman
and bars federal agencies from interpreting it otherwise.
But the tax issue is more complicated in California, one of nine states with
community-property rules. Those rules require married couples to treat all
income as joint property for a variety of purposes. If they are filing taxes
separately, the Supreme Court has said they must combine their incomes
together and then divide the sum equally.
Beginning in 2005, California law directed that these same community
property rules apply to registered domestic partners.
WSJ's Laura Meckler joins the News Hub to discuss a new ruling by the IRS,
which says same-sex couples must be treated the same as heterosexual
couples under a feature of tax law.
.
Applying this rule to federal taxes offers clear tax benefits for people such as
Mr. Rey—an executive who said he earns much more than his partner does—
because it brings him into a lower tax bracket. In 2007, he said, applying this
standard would have cut his federal tax liability in half and more than doubled
his partner's tax bill. Taken together, it would have saved them about $7,000,
he said.
In 2005, the pair asked the IRS for clarification as to how they should file
states, may not file joint federal tax returns. The federal Defense of Marriage
Act, passed in 1996, defines marriage as between one man and one woman
and bars federal agencies from interpreting it otherwise.
But the tax issue is more complicated in California, one of nine states with
community-property rules. Those rules require married couples to treat all
income as joint property for a variety of purposes. If they are filing taxes
separately, the Supreme Court has said they must combine their incomes
together and then divide the sum equally.
Beginning in 2005, California law directed that these same community
property rules apply to registered domestic partners.
WSJ's Laura Meckler joins the News Hub to discuss a new ruling by the IRS,
which says same-sex couples must be treated the same as heterosexual
couples under a feature of tax law.
.
Applying this rule to federal taxes offers clear tax benefits for people such as
Mr. Rey—an executive who said he earns much more than his partner does—
because it brings him into a lower tax bracket. In 2007, he said, applying this
standard would have cut his federal tax liability in half and more than doubled
his partner's tax bill. Taken together, it would have saved them about $7,000,
he said.
In 2005, the pair asked the IRS for clarification as to how they should file
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Gay Couples Get Equal Tax Treatment
by Laura Meckler
The Internal Revenue Service has ruled that same-sex couples must be treated the
same as heterosexual couples under a feature of California tax law. Advocates for the
change say it is the first time the agency has acknowledged gay couples as a unit for
tax purposes.
The change reverses a 2006 IRS ruling and opens a tax benefit to many same-sex
couples that wasn't available before. It may affect couples in Nevada and Washington
state, as well.
MoreIRS Nears Action on Church Pensions .
Specifically, the agency said nearly 58,000 couples who are registered as domestic
partners in California must combine their income and each report half of it on their
separate tax returns. Same-sex couples account for an estimated 95% of the state's
domestic partnerships; partnership status is also available to heterosexual couples in
which one partner is over age 62.
"For the first time ever, I'm able to file federal taxes that, in a small way, acknowledges
what's going on in my relationship," said Eric Rey of Berkeley, Calif. Mr. Rey and his
partner requested the IRS ruling, first during the Bush administration and again this
year.
.The pair wed during a brief window when same-sex marriage was legal in California,
but the issue arises because the men are registered as domestic
Gay Couples Get Equal Tax Treatment
by Laura Meckler
The Internal Revenue Service has ruled that same-sex couples must be treated the
same as heterosexual couples under a feature of California tax law. Advocates for the
change say it is the first time the agency has acknowledged gay couples as a unit for
tax purposes.
The change reverses a 2006 IRS ruling and opens a tax benefit to many same-sex
couples that wasn't available before. It may affect couples in Nevada and Washington
state, as well.
MoreIRS Nears Action on Church Pensions .
Specifically, the agency said nearly 58,000 couples who are registered as domestic
partners in California must combine their income and each report half of it on their
separate tax returns. Same-sex couples account for an estimated 95% of the state's
domestic partnerships; partnership status is also available to heterosexual couples in
which one partner is over age 62.
"For the first time ever, I'm able to file federal taxes that, in a small way, acknowledges
what's going on in my relationship," said Eric Rey of Berkeley, Calif. Mr. Rey and his
partner requested the IRS ruling, first during the Bush administration and again this
year.
.The pair wed during a brief window when same-sex marriage was legal in California,
but the issue arises because the men are registered as domestic
their taxes. The next year, the agency issued a memorandum stating that
California domestic partners shouldn't apply the community-property standard
to federal taxes because the relevant precedent didn't apply "outside the
context of a husband and wife."
"The relationship between registered domestic partners under the California
Act is not marriage under California law," the agency said.
In 2007, the IRS was less definitive. In a private ruling sought by Mr. Rey and
his partner, the agency declined to offer guidance either way.
When President Barack Obama was elected, Mr. Rey's tax attorney, Donald
Read, thought they should try again, citing the White House Web site's
professed commitment to "equal federal rights" for gay and lesbian couples.
This time, the IRS said these couples not only may, but must, combine and
then divide their income for federal tax purposes. It made that point in a new
memo issued last month.
Mr. Read said it was the first time the IRS had given equal status to gay
couples. IRS representatives wouldn't confirm his statement but couldn't point
to any prior comparable decision.
An IRS spokesman said the shift is due to a 2007 change in state law. That
change dealt with the way the state calculates income for California taxes.
Nevada and Washington state are also community-property states that
recognize domestic partnerships, and so couples there may also be affected.
The IRS ruling has detractors. It doesn't appear to square with the Defense of
Marriage Act, which bars federal agencies from recognizing same-sex
couples, said David Herzig, an expert in tax law at Valparaiso
California domestic partners shouldn't apply the community-property standard
to federal taxes because the relevant precedent didn't apply "outside the
context of a husband and wife."
"The relationship between registered domestic partners under the California
Act is not marriage under California law," the agency said.
In 2007, the IRS was less definitive. In a private ruling sought by Mr. Rey and
his partner, the agency declined to offer guidance either way.
When President Barack Obama was elected, Mr. Rey's tax attorney, Donald
Read, thought they should try again, citing the White House Web site's
professed commitment to "equal federal rights" for gay and lesbian couples.
This time, the IRS said these couples not only may, but must, combine and
then divide their income for federal tax purposes. It made that point in a new
memo issued last month.
Mr. Read said it was the first time the IRS had given equal status to gay
couples. IRS representatives wouldn't confirm his statement but couldn't point
to any prior comparable decision.
An IRS spokesman said the shift is due to a 2007 change in state law. That
change dealt with the way the state calculates income for California taxes.
Nevada and Washington state are also community-property states that
recognize domestic partnerships, and so couples there may also be affected.
The IRS ruling has detractors. It doesn't appear to square with the Defense of
Marriage Act, which bars federal agencies from recognizing same-sex
couples, said David Herzig, an expert in tax law at Valparaiso
| . |
University School of Law. That law, he said, means the IRS should not be
recognizing these unions, even if state law directs otherwise.
"We shouldn't be picking and choosing where these rules apply," he said. In
passing the federal law, he said, "You made your bed."Mr. Rey credits Mr.
Obama's influence for the IRS's shift. "The fundamentals of the legal argument
were the same as they had been before," he said. "This time we got a different
result."
Write to Laura Meckler at laura.meckler@wsj.com
Copyright © WallStreetJournal & AMBIENTE MAGAZINE.
Do not reproduce without citing this source
recognizing these unions, even if state law directs otherwise.
"We shouldn't be picking and choosing where these rules apply," he said. In
passing the federal law, he said, "You made your bed."Mr. Rey credits Mr.
Obama's influence for the IRS's shift. "The fundamentals of the legal argument
were the same as they had been before," he said. "This time we got a different
result."
Write to Laura Meckler at laura.meckler@wsj.com
Copyright © WallStreetJournal & AMBIENTE MAGAZINE.
Do not reproduce without citing this source