By Jamie Rubenstein
By most accounts, the long-awaited IRS federal tax ruling recognizing same-sex marriages, regardless of state residency—in effect, upholding “state of celebration”—won high praise last week from a wide class of LGBT accountants, lawyers and finance planners.
“It is very good news we got from the IRS and this is the way we hoped it would turn out in how the IRS will be treating same sex couples more fairly,” declared New York financial advisor Nanette Lee Miller, identified as a national leader of Marcum LLP’s LGBT practice.
For one thing, “tax preparation will become simpler” for LGBT couples particularly in recognition states and the tax bite should be lessened, she predicted as couples can now find the process less complicated. Apart from income taxes, the IRS ruling also “makes it easier for us to do advance planning for couples” in estate and gift taxes as software becomes adjusted, she said.
“I do think you will now see an uptick of more marriages in the states and municipalities where they are recognized,” she forecast.
Agreeing with Miller, Boston-based advisor Debra A. Neiman, co-founder of Pride Planners and author of a popular online newsletter dealing with the Defense of Marriage Act repercussions, maintained the IRS ruling also “allows married couples the ability to fund spousal IRAs, which helps when one spouse stays at home.”
“Additionally, married couples will no longer have to pay income taxes on phantom income from premiums paid for the spouse’s health care,” added Neiman, who heads up her own Arlington, Mass. firm. She concluded, “overall, this is a huge milestone.”
Despite the euphoria as relayed by the purveyors of financial advice, the problem of non-recognition or “non-free” states as some call them; remain a problem. Federal agencies along with the courts and state legislatures will still be delivering interpretations and opinions that will certainly color LGBT tax and benefits treatment in the months ahead, executives agree.
Taking that view, Dale Terwerdo, head of his own Edmonds, Wash. financial advisory firm, told 429Magazine “the ruling today is great news, but isn’t really a surprise.”
“The DOMA ruling in June caused a lot of celebration as well as confusion,” observed Terwerdo but still key federal agencies will “need to continue to issue guidance and this is a good first step in the clarification process.”
Like others, Los Angeles lawyer Bruce Givner, a partner in Givner & Kaye, said the IRS did clear up the “unanswered question” about residency now applied to all legal marriages in the U.S. or foreign countries “but it does not extend to civil unions, registered domestic partnerships or other legal relationships.”
Still, he said, same-sex spouses can file as married couples for the 2013 tax year “and may file amended returns for prior years which means they may be eligible for refunds.”
At the same time, “before filing amended returns, they want to consider whether filing an amended return will cause an audit that for other reasons they would prefer to avoid,” he said.
In its ruling, continued Givner, “the IRS pointed out it has recognized common-law marriages for over 50 years despite the refusal of states to give full faith and credit: to such marriages in other states.”
“Although states have different rules of marriage recognition, uniform national rules are essential for efficient and fair tax administration,” he said. ”A rule under which a couple’s marital status could change simply by moving from one state to another would be prohibitively difficult and costly for the IRS to administer and for taxpayers to apply.”
In another area, Givner asked, “Can spouses who were taxed on healthcare or other benefits for their same-sex spouse file amended returns and claim refunds? What about their employers that withheld and paid FIC tax on benefits? Will there be a procedure for employers to claim refunds for overpaid federal employment taxes?” he asked.