Obama extends benefits of gay federal workers

In a move that goes beyond the memo President Obama signed last June which permitted same-sex partners to use the government’s long term care insurance and other fringe benefits, he extended the range of benefits to same-sex partners of eligible federal workers to include access to medical treatment, relocation assistance, credit unions, and fitness centers. These benefits do not cover uniformed members of the military, however, but the House is working on a repeal of the “Don’t Ask Don’t Tell” law, so there is a chance they will cover same-sex couples of military personnel next year.

This extension of benefits comes in perfect alignment each year with June now being the Lesbian, Gay, Bisexual, and Transgendered Pride Month declared by Obama. Obama also ordered federal agencies last year to identify other benefits that could be offered to same-sex partners. Unfortunately, he is prevented by federal law from providing full federal benefits to same sex-partners. Read the full article here.

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One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality

Earlier in the week the Tax Prof published a new blog entry explaining the recent revision to Section 2702 of the IRS code to apply to same sex couples. The article quotes the conclusion from a recent publication by Matthew Fry titled “One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality: Revising Section 2702 of the Internal Revenue Code to Apply Equally to All Marriages.” Check out the quote below.

This Comment suggests the revision of one specific provision of the federal wealth transfer taxation scheme as one small step in the direction of equality for all married couples, regardless of sexual orientation. It is true that this suggested change would be an economic setback for same-sex couples that currently use GRITs as a means of transferring wealth within their economic unit while avoiding tax liability. In the grand scheme of equality, however, many same-sex taxpayers might be grateful for the hint of federal recognition that has, for so long, been denied to their marriages and civil unions. Eventually every provision of the Internal Revenue Code should be revised to guarantee equal treatment of same-sex couples based upon the foundational principles of horizontal equity, taxation of the economic unit, and a recognition of--and taxation based upon--economic reality rather than labels and politics. Revision of the Internal Revenue Code in pursuit of legislators' guiding principles will result in a tax code with integrity, a code that treats all taxpayers under it equally and is not influenced by the political zeitgeist.

For more information on LGBT tax issues check out these two blog entries I published earlier this year: Taxes 101 For Domestic Parents & Same-Sex Couples and Top 9 Tax Tips for the LGBT Community.

Tax Court Rejects Gay Activist's Attempt to File Joint Return With Long-Term Partner

Earlier today, I came across this entry on the Tax Prof Blog about a recent ruling from the U.S. tax court against a California gay rights activist. According to a post from October of 2008, Merrill “filed papers with the U.S. Tax Court objecting to the Defense of Marriage Act (DOMA) based on the 1st Amendment Establishment Clause of the U.S. Constitution. He objects to not getting all the same benefits as other married couples” under the current tax code.

On Monday the Tax Court dismissed Merril’s claims, saying “we must decide whether petitioner, who was unmarried but in a committed relationship with another man during the years at issue, is entitled to married filing joint status. We hold that he is not.”

Petitioner and Mr. Boyle lived in North Carolina during the years at issue. They participated in a commitment ceremony in 2004, but North Carolina did not recognize same-sex marriages. Petitioner and Mr. Boyle were legally married in 2008 after moving to California.

Petitioner failed to file a tax return for either of the years at issue. Respondent contacted petitioner about filing income tax returns. Petitioner responded with a letter stating that he was not evading taxes, but refused to pay taxes as an act of civil disobedience advocating same-sex marriage equality. Respondent prepared substitutes for returns for the years at issue and issued deficiency notices to petitioner. In the substitutes for returns, respondent determined petitioner's filing status to be single. Petitioner resided in North Carolina when he filed the first petition regarding his return for 2004, and he resided in California when he filed the second petition regarding his return for 2005.

In both petitions, petitioner argued that he must be accorded married filing joint status, rather than single status, because of his long-term domestic partnership with Mr. Boyle. Respondent filed motions for partial summary judgment on whether petitioner is entitled to married filing joint status for the years at issue. Respondent argues that petitioner is not entitled to this status because he was not married in the years at issue and he did not file a joint return for those years. We agree and discuss each of respondent's arguments in turn.

Petitioner admits he was not legally married for either of the years at issue but argues, nonetheless, that he should be allowed to file joint returns because he was in a long-term committed relationship with his gay partner and North Carolina did not recognize same-sex marriage. Despite petitioner's argument, a taxpayer must file a joint return with his or her spouse and it must be signed by both spouses to claim the married filing joint status.

We conclude that respondent properly determined single filing status for petitioner. Accordingly, we hold that petitioner is not entitled to married filing joint status for the years at issue.

To read the court’s full decision check out Merrill v. Commissioner, T.C. Memo 2009-166 (July 13, 2009).

IRS Limits Home Mortgage Interest Deduction for Gay/Lesbian Couples

The Tax Professor Blog recently posted an entry discussing new IRS limits on mortgage interest deductions that would negatively affect some gay and lesbian couples. Check out the text of the entry below.

The TaxProf email discussion group has been abuzz lately about newly issued Chief Counsel Advisory 0911007 (Nov. 24, 2008; released Mar. 13, 2009), which held that the $1 million limitation on the deduction of mortgage interest on acquisition indebtedness under § 163(h)(3)(B) applies on a per-mortgage basis, rather than on a per-taxpayer basis. The ruling has enormous implications for both gay/lesbian and heterosexual couples who co-own their homes, particularly in states with high housing prices like California. Prior to the ruling, tax folks assumed that unmarried co-owners could each deduct mortgage interest on $1 million of acquisition indebtedness, thus permitting deduction of interest on one $2 million mortgage. The ruling appears contrary to the statute, as § 163(h)(4)(A)(i)(I) defines a qualified residence by reference to § 121, and Reg. § 1.121-2(a)(2) applies the $250,000 exclusion on a per-taxpayer basis in a co-owner situation.

Top 9 Tax Tips for the LGBT Community

Taxes have become a major financial issue for members of the LGBT community over the years. 11 million unmarried couples living in this country are missing out on the over 1,100 federal laws benefiting married couples. For this reason, many couples around the country get stressed every tax season with the task of saving on their taxes, without the benefits of federally recognized relationships.

Last month, my law firm joined the Sacramento Rainbow Chamber of Commerce. Throughout tax season, both the Roni Deutch Tax Center® and my law firm are reaching out to members of the LGBT community who need help with taxes. To kick-start our efforts, I have compiled the following 9 tax tips for members of the LGBT community.

1. Mortgages

When it comes to mortgages, the best way to save money on your taxes is to plan in advance which person should take the mortgage out. If you are making $45,000 a year and your partner is making $150,000, it makes more sense for your partner to take out the mortgage. This is because the higher income-earning partner can then claim the mortgage interest deduction over the years, and save more due to being in a higher tax bracket.

2. LGBT Friendly Help

Ask friends, family, and community members if they know of a tax professional that specializes in LGBT taxes. When it comes to taxes for unmarried couples, you can use all the advice you can get! Most tax professionals will be able to help you to some extent, but having a specialist in your area will ensures you are doing all you can to make your taxes as low as possible. It also improves your chances of taking advantage of any benefit you do get.

3. Gift Tax Exclusion

A married couple has the great benefit of being able to give gifts to each other without having to pay gift or estate taxes. Unfortunately, couples within the LGBT community cannot do the same. There is however, the annual gift tax exclusion, which when used properly, can make up for some of this injustice. The annual gift tax exclusion allows you to gift $13,000 worth of assets without paying taxes on them.

4. Charity Contributions

Charitable contributions can greatly help you reduce your tax liability. Much like the mortgage interest, you are going to want the partner with the highest income making your charitable contributions—and getting to claim the resulting deduction.

5. Be Prepared for Anything

When living with a partner that you cannot legally marry, it is important that you are both vigilante when it comes to your finances. No one wants to think it, but if your relationship ends, you are not protected the same way as a married couple is for purposes of dividing assets. If there is no agreement governing the relationship, asset ownership is pretty much going to come down to who bought or funded what. This may not seem fair, as you may have made purchases based upon who benefited most, taxes-wise. When you begin building up many valuable assets, hiring a lawyer to draw up documents is smart. Consider entering a cohabitation agreement to govern your finances during the relationship and providing the framework for splitting assets if your relationship goes sour.

6. Asset Shifting

You should also consider moving assets between you and your spouse to save on interest. Since you have the lower income ($45,000), you will want to shift more income-earning assets towards yourself. This way, you will be taxed at a lower rate on the income earned than your partner ($150,000) would. The ability to asset shift is actually a huge benefit when compared to married couples, who cannot asset shift if filing jointly.

7. Inheritance Taxes

If you and your partner are registered civil partners and your partner passes away, you do not have to pay inheritance taxes at all. However, if your state does not recognize registered civil partners, your partner may, in fact, be subject to estate taxes before the bequest.

8. Separate Accounts

Separate accounts will simplify financial management for you and your partner. You may also consider three accounts—one account for yourself, one for your partner, and one joint account. Use your separate accounts to pay individual bills and taxes from. Also, use the separate accounts to deposit your income into. Then, each of you can fund the joint account to pay shared expenses (e.g. groceries, trips, etc.).

9. Capital Gains

If you and your partner are registered domestic partners, then you can give assets to your civil partner and not pay any capital gains taxes whatsoever. Along with inheritance taxes, this is one of the few big tax advantages civil partners get over unmarried heterosexual couples.