Tonight, I celebrate today's news about gay couples and tax returns with a certain happiness. Well, except for those certain gay couples who will now be hit with the marriage penalty. What is the marriage penalty? Basically, single-income couples usually benefit from filing as a married couple, while dual-income couples are often penalized. So yes, for you gay couples with dual incomes, welcome to the land of crappy, but equal, rights.
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.
What does this mean? It means gay married folks can file amended tax returns to claim refunds if they can take advantage of married filing joint status on the IRS form 1040.
Now, here comes the fine print:
Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.
Now, wait a second. That is a bit misleading. Why does the IRS say "Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009?" Just what could be these rare, special circumstances? Let me answer that with another question.
Is something that there is 10 million of a year, rare? Because yes, while there are a few thousand of "consents to extend statute of limitations" that are signed (typically when a taxpayer is in an audit or an OVDP situation), the vastly more common form that extends the statute of limitations, that about 10 million tax payers file each year, is something known as an extension to file a tax return. The extension (which is automatically granted) extends the statute by six months, to be exact.
Let's use an example.
Pat and Jane were married in 2009. Both Pat and Jane filed single as there was no federal recognition of gay marriage. Both of them, however, filed an extension for a tax return like they do every year. That made their tax return due October 15, 2010. And say it is today's date. Can Pat & Jane file amended tax returns to claim a refund?
Well, if they were a straight couple the answer would be yes. So it must be true as well if they are gay. But the IRS' guidance doesn't make it seem that way, does it?
Of course, there were limited jurisdictions in 2009 that recognized gay marriage (Connecticut, Vermont, Massachusetts and Iowa) so the potential gay taxpayers that could be negatively affected by getting this rule wrong probably aren't that many. But, as long as I can save just one dollar from getting into the hands of the IRS, I feel I have fulfilled my public duty.