Gay Couples: Is It Time to File Protective Tax Refund Claims?

Although same-sex marriage is currently allowed in eight states, the IRS does not recognize these marriages for tax purposes. This means that gay couples cannot file joint tax returns. Instead, they must file their taxes as if they were unmarried individuals. This can result in additional taxes.

In one case, for example, Edith Windsor married her partner in Canada and later inherited a substantial sum when the partner died. She ended up having to pay $363,053 in federal estate taxes because the IRS refused to recognize her as the surviving spouse of her deceased partner. Had the couple's marriage been recognized by the IRS, there would have been no federal estate taxes owed due to the unlimited marital deduction.

The IRS is currently prevented from recognizing same-sex marriages because of the Defense of Marriage Act (DOMA), a federal law Congress passed in 1996 that bars federal recognition of same-sex marriages for all purposes, including insurance benefits for government employees, Social Security survivors' benefits, immigration, and the filing of joint tax returns.

Windsor sued the federal government claiming that DOMA was unconstitutional. The federal appeals court in New York agreed with her, holding that the law violated gay peoples' right to equal protection under the law (Windsor v. United States). The United States Supreme Court has agreed to hear the appeal. If the Supreme Court agrees that DOMA is unconstitutional, it will be struck down. In this event, the IRS will have to recognize same-sex marriages and same-sex couples will be able to claim refunds for federal tax overpayments made in the past when they were prevented from filing jointly. It will likely be June 2013 before the Supreme Court rules on the case.

However, it is not just couples married in one of the states recognizing same-sex marriages who could benefit if DOMA is overturned. Couples who live in one of the nine states (plus Washington, D.C.) that recognize “marriage equivalent statuses” for same-sex couples could benefit as well. Although the domestic partnerships or civil unions recognized by these states may not be marriages in a technical sense, there is a good argument that they should be treated as marriages for tax purposes. This is something the courts will have to decide if DOMA is overturned.

There is a three-year statute of limitations on refund claims. This means that taxpayers must file claims for refunds within three years after the year of the return involved. Thus, anyone who could benefit if DOMA is held unconstitutional should file a claim for refund now. By filing a claim now, couples will have be able to obtain refunds for overpayments dating back to 2009. The claim applies to income taxes, estate taxes, as well as gift taxes.

To file a protective claim, you must file an amended tax return for the year or years involved and disclose that it is a protective claim based on Windsor v United States. Your claim will be held by the IRS until the issue is resolved in the courts.

 January 2013