Tax Planning Opportunities for Same Sex Couples

The Supreme Court’s decision on June 26, 2013 to strike down sections of the Defense of Marriage Act created a unique planning situation for same sex couples. Prior to this ruling, the Internal Revenue Service held that same sex couples were ineligible to file as married, even when living in States that legally recognized same sex marriage. Subsequent to this ruling, the IRS has put out guidance which allows for a bit of unusual tax planning.

Under IRS Revenue Ruling 2013-17, the IRS stated that starting with tax year 2013, all legally married same sex couples must now utilize the married filing statuses- either Married Filing Jointly or Married Filing Separately. However, Rev Ruling 2013-17 is careful to distinguish that this only applies to legally married couples. This provision does not apply to registered domestic partnerships, civil unions, or similar arrangements recognized under state law. On the positive side, the IRS took a celebration approach to recognizing marriage as opposed to a domicile approach. This means you do not have to be a resident of the state to enjoy the privilege. Legal marriage in any of the 50 States, DC, US Territories, or even foreign countries that allow it will be recognized for federal tax purposes, regardless of the laws of your State of residence.

For same sex couples that are now legally married, an analysis may be worthwhile to consider whether Married Filing Jointly or Married Filing Separately is more beneficial to them. Generally speaking, a joint filed return is more advantageous, as a number of credits and deductions are restricted or eliminated on a separately filed return. However, every situation is unique so planning must still be done.

The unique planning situation is that, for open years prior to 2013, same sex couples who were legally married in those open years have the option to leave their returns as filed, or to amend and file a Married Filing Jointly return. For most taxpayers, the currently open tax years are 2010, 2011, and 2012, with 2010 expiring for most on April 15, 2014. If you fall into this situation, it would be prudent to do an analysis of the potential tax refund for the open years and consider filing amended returns, if appropriate. It is not often the IRS offers a situation to file only if it’s in your best interest. And going forward, as mentioned above, it is not optional. Legally married couples must file married going forward, even if filing single in prior years had proven to be more advantageous.