Married Gay Couples Face Tax Tangles

The Massachusetts Supreme Judicial Court ruling that legalized gay marriage on May 17, 2004, was a sweet victory for gay men and lesbian women nationwide. But it had no impact on the federal Defense of Marriage Act, which defines a legal marriage as between one man and one woman. Because the Internal Revenue Service will not accept joint married tax filings from same-sex couples, gay married couples are spending more time -- and sometimes twice as much money -- doing their 2004 taxes.

One strategy: file jointly in Massachusetts, which sanctions same-sex marriage; then do two individual filings with the federal government because it does not recognize same-sex marriage. But to do this, couples need to fill out a ''phantom" federal tax return the IRS will never see: a joint married filing prepared solely to determine their state taxes, which are based on federal calculations. Technical Information Release 04-17, issued by the state's Department of Revenue is designed to answer the myriad questions for married same-sex couples (also see: http://www.dor.state.ma.us/help/guides/abate_amend/Personal/Administrative_SamSexMarriages.htm).

Some gay couples said they feel they are being forced to lie because they are filing two contradictory returns: for the federal they each must check the ''single" box, while for the state they must check ''married." How can both be true? ''How do you deal with the fact you sign your returns under the pains and penalties of perjuries?" asked Joyce Kauffman, a Cambridge financial adviser to lesbian and gay families. Nothing to worry about, said Donald Twomey, attorney for the state's Revenue Department. ''We understand those will not match up." IRS spokeswoman Peggy Riley acknowledged the state-federal conflict but said the IRS will deem same-sex couples' federal returns accurate so long as each one files individually.

GLAD (Gay and Lesbian Advocates and Defenders), which sponsored a well-attended tax seminar in February, offers couples this suggestion: Put an asterisk on each individual federal filing indicating that they married in 2004. Better yet, write a letter disclosing they married. A couple married anytime in 2004 is considered married for the entire tax year.

Bruce Bell, coordinator of GLAD's legal-information hot line, did his and his partner's 2004 taxes on TurboTax software. He contends it was simple. First, he checked off married couple on a federal 1040 form so the computer would calculate their taxes that way. Then he instructed the computer not to file the dummy return with the IRS but use it only to calculate state taxes. Finally, he produced two 1040 returns, one for himself, one for his partner. Those are going to the IRS. Bell said he enjoyed a little revenge upon discovering the joint federal filing would have generated $200 more in tax revenues for the government than did their two individual filings combined.

Now that same-sex couples can file a joint married return in Massachusetts, whether there is a tax advantage depends on their finances. There is usually no difference regarding income because it is taxed at a flat rate. But for couples with investments, one spouse's losses can offset the other's capital gains if they file jointly.

-Adapted from “With marriage, gay couples face tax tangles”, by Kimberly Blanton, The Boston Globe, March 14, 2005.

03/2005