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DOMA, taxes and where you live

The Supreme Court on June 26 declared the Defense of Marriage Act, or DOMA, dead.

That same day, Attorney General Eric Holder said that President Obama had directed the Justice Department to work with other agencies to expeditiously implement the decision making federal benefits available to same-sex married couples.

And expedite they did.

On Friday, two days after the DOMA decision and the same day that same-sex marriages resumed in California thanks to the high court's removal of the Proposition 8 roadblock, the Office of Personnel Management (OPM) announced that same-sex spouses are eligible for a wide range of federal program benefits.

Tax ruling pending: The Internal Revenue Service, however, is still working on the issue.

The IRS issued a brief statement on Thursday, June 27:

IRS DOMA statement June 27 2013

To be fair, marriage is woven into a lot of tax laws. A 2004 Government Accountability Office report identified 198 separate Internal Revenue Code provisions tied to marital status.

Anyone who's ever filed a tax return knows that the rules are slightly different when it comes to different tax benefits and situations.

So finding and fixing them all -- and updating all the forms, instructions and publications in which marriage is mentioned -- is going to be sort of like trying to untangle spaghetti without getting any marinara sauce on your new white blouse.

Plus, the IRS has a lot of other things, like, oh, furloughs and Congressional hearings, in addition to tax spaghetti with a side of DOMA on its plate right now.

What about the no-marriage states? A lot of folks, however, are hoping the IRS issues some guidance soon.

They, and all tax professionals and tax geeks, are especially interested to know what the IRS will decide in connection with how the DOMA decision applies to same-sex couples who were married in a state that recognizes the unions, but who have since moved to one of the 37 that don't accept the marriages as legal.

Marriage map 26-June-2013 via Marriage Equality USA
Click image, courtesy Marriage Equality USA, for a larger view

Consensus immediately following the DOMA ruling, including me in talking with several television news programs, was that the tax benefits of filing joint returns will apply only to couples in states that recognize their marriage.

States rule regarding filing status: The reason for that supposition is that the IRS has generally deferred to the states when it comes to marriage and taxes. That means that federal filing status has been determined by the state in which the taxpayers live.

If you're married on Dec. 31 in your state, then you're married that whole year for federal tax-filing purposes. And if your state grants you a divorce on the last day of the year, then the IRS considers you single or, if you have dependent kinds, a head-of-household taxpayer at federal 1040 filing time.

Another obvious example of state rules impacting federal returns is in the nine community property states.

In those states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- property acquired by one spouse belongs to both. Of those states, only California and Washington allow same-sex marriages; Nevada recognizes registered domestic partnerships.

As IRS Publication 555 notes, "Community property laws affect how you figure your income on your federal income tax return if you are married ... [and] also affect your basis in property you inherit from a married person who lived in a community property state."

So same-sex married couples in California and Washington (and domestic partners in Nevada) have to take their shared assets situation into account in filing federal returns.

OPM tosses wide benefits net: While the Supreme Court opinion does not require states to recognize same-sex marriages, same-sex couples are hoping that the IRS will follow the OPM when it comes to a broad interpretation of residency and taxes.

The OPM memo announcing the expansion of federal benefits repeatedly notes that the changes apply to "all legally married same-sex spouses."

The federal office says that means couples who are legally married in one state, but live in a state that does not recognize the marriage will qualify for the benefits afforded all federal workers across the country.

"Yes, these benefits will be available to any federal employee or annuitant who has a valid marriage license, regardless of their state of residency," Thomas Richards, OPM director of communications, told BuzzFeed Friday afternoon.

IRS and all married filers: Will the IRS do the same regarding tax filing?

It certainly would simplify federal filing for tens of thousands of married same-sex couples who no longer live in the state where they exchanged vows. All of us, married or not, are quite mobile nowadays, moving to take jobs or to be closer to family.

Lesbian-wedding-cake-topperIt also would appear that if the IRS decides post-DOMA to restrict married filing choices to same-sex couples in only 13 states and the District of Columbia, it would discriminate in this tax area just as Edith Windsor contended the agency did in denying her the same equal estate tax treatment.

Windsor's lawsuit is the one the high court examined in deciding that DOMA demanded unequal federal treatment. And yes, I know Windsor and her deceased wife Thea Spyer lived in New York, a state that OKs same-sex-marriage.

But while the Windsor decision does not mandate that all states recognize same-sex marriages, it also does not specifically preclude Uncle Sam from acknowledging their existence regardless of where the couples live.

That's OPM's reading of the ruling, which does, in fact, say that the federal government cannot ignore such legal marriages.

If the IRS opts to limit federal filing to a group of legally married couples who just happened to schlep their belongings elsewhere for a while, I see another round of lawsuits.

Easier for all: Plus, a general acceptance of same-sex married couples on the same filing ground as heterosexual taxpayers also would make things simpler for the IRS. The agency then wouldn't have to worry about differentiating which filings and associated tax breaks are allowed or not based on taxpayer addresses on the returns.

And we all know how everyone, including you, me and the IRS, likes to take the easiest possible route to do our jobs. That's what, after all, the agency says it was doing in reviewing tax exempt organization applications.

So we wait for regulatory guidance.

Lesbian and gay married couples, would a tax ruling affecting your federal filing make a difference to you in deciding where to live?

And all readers, what do you think the IRS should do regarding the filing status of legally married same-sex couples who live in states where their marriages are not recognized?

What do you think the IRS will do?

More me talking taxes: It comes as no surprise that DOMA was a big deal last week at my other tax blog.

Bankrate Taxes Blog icom As I pointed out in such an understated fashion on the day of the Supreme Court ruling, the DOMA decision means tax changes.

But the tax world was turning before June 26.

Earlier in the week I noted that the IRS has completed its initial review of the inappropriate Tea Party tax-exempt screenings and found that while there was no conspiracy, the agency had used additional be on the lookout, or BOLO, lists.

My other tax blog thoughts are posted at Bankrate Taxes Blog on most Tuesdays and Thursdays, although last week's events bumped the postings up a bit.

But no worries. If you miss them there whatever day, you can find a summary (and links) here the following weekend.

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