Eileen Sherr
Eileen Sherr
DOMA update: Federal income and estate tax refund claims and state taxes

Married same-sex couples who live in states that don’t recognize same-sex marriage but refer to federal returns continue to face uncertainty.

September 12, 2013
by Eileen R. Sherr, CPA

Following the Supreme Court’s decision in Windsor, Sup. Ct. Dkt. No. 12-307 (6/26/13), which invalidated a portion of the Defense of Marriage Act (DOMA), P.L. 104-199, the Treasury Department and IRS recently announced that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes.” The IRS also issued a revenue ruling (Rev. Rul. 2013-17) and FAQs providing guidance on the topic. The new rules apply regardless of where the couple lives—in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not.

The ruling applies to all federal tax provisions where marriage is a factor, for all federal taxes, including income, estate, and gift taxes. Tax provisions in which marriage is a factor include filing status, personal and dependency exemptions, the standard deduction, employee benefits, IRA contributions, the earned income tax credit, and the child tax credit, among others.

Legally married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately status.

Amended returns and refund claims

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more earlier tax years still open under the statute of limitation. Taxpayers who wish to file refund claims for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return. Taxpayers who wish to file refund claims for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement.

State tax impact

According to the Tax Foundation, 24 states do not recognize same-sex marriage but do require state taxpayers to refer to their federal tax return when preparing their state tax return. These 24 states (Arizona, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia, West Virginia, and Wisconsin) will need to provide guidance to taxpayers on how to proceed before the 2014 tax season.

In these states, same-sex couples will file single returns at the state level but joint returns at the federal level. State law often refers to the federal return for income and deductions and filing status and requires state return items to match the federal return, which will be impossible. For states that do not opt to recognize same-sex marriage by next year, several options might resolve these conflicts.

Some states may require taxpayers to construct their federal returns based on single filing status to determine state tax liability for each member of the same-sex couple. Alternatively, states may permit taxpayers facing a federal-state filing status conflict to divide their joint federal return in half as a means to complete the state tax calculation. Another possibility is a new “federal joint return” filing status that applies to taxpayers filing a federal joint return who cannot do so at the state level under state law.

AICPA resources

The AICPA will continue to monitor this issue and keep members informed of developments. For more information and resources, see the AICPA Domestic Partners and Same-Sex Couples webpage and Estate Tax Impact of Same-Sex Marriage Ruling webpage.

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Eileen R. Sherr, CPA, M. Tax is a senior technical manager–taxation at the AICPA.