Same Sex Yo-Yo

Today TaxMama wants to discuss a tax issue that will affect tax preparers, certain taxpayers – and perhaps your friends and relatives around the country. Same-Sex marriage. Please don’t turn away because the  topic is odious to you. You probably know someone affected – and may be able to help them.

Dear Friends,

Right now, California is experiencing a yo-yo affect when it comes to same-sex marriages due to a case working its way through the legal system. As you know, things often start in California and spread across the country. There is no doubt this case will reach the Supreme Court. Whether the Court will hear it or not…no one knows for certain. Sooner or later, the Supreme Court must address this issue once and for all. This is probably going to be the time.

Spidell Publishing reported last week that the United States District Court for the Northern District of California lifted the temporary ban on same-sex marriages on August 12, 2010. (Order on Motion to Stay in Perry et al. v. Schwarzenegger et al. U.S. District Court, Northern District of California Case No. 09-2292) This means that same-sex marriages will be legal in California beginning August 18, 2010, while the ruling that Proposition 8 is unconstitutional is appealed to the higher courts. That was last week.

On Monday, before the end of their working day, the 9th Circuit Court of Appeals restored the ban on same-sex marriages, stopping the weddings that were all set for today. The Court will hear the arguments during the week of December 6. Regardless of the ruling of the 9th Circuit, it will be appealed. 

Why am I wasting your time with this? Because this is a tax issue. 

Spidell Publishing explains, for income tax purposes, California treated all same-sex married couples who were married prior to the ban the same as registered domestic partners (RDPs). (FTB Notice 2008-5) This means that community property rules will apply in California, and they must file as married for California purposes, even though they must file as single for federal purposes.

To clarify the situation for IRS purposes, the California Legislature passed a resolution (AJR 29) on August 9, 2010, asking the IRS to issue a revenue ruling that says that same-sex married couples should be treated the same as RDPs for federal purposes, too. The request is in response to CCA 201021050, which states that RDPs in California must now combine their income and each report half of it on his or her federal tax return, but does not address same-sex married couples.

The issues reach far beyond the complexities of filing different tax returns for IRS and your state. There are several states where same-sex marriage is presently legal.  These couples will face estate tax issues, gift tax issues, parental custody issues – and even divorce issues, that are a wasp’s nest – even if you address them up front. See TaxMama’s 2007 MarketWatch article for some of the problems.

If you are affected, or anyone you know is contemplating a same-sex marriage, a registered domestic partnership – or just living together without any legal contracts, please encourage them to meet with both a tax professional and a legal professional who can help them protect their union, their family and determine the correct disposition of their assets and children, should anything happen to either person – or both of them.

And remember, you can find answers to all kinds of questions about same-sex marriages, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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