Income Tax Dilemma Faces Gay Couples Who File Jointly And Defy Federal Law

Gay, Married And Gaming The IRS?

Newlyweds Ruth Berman and Connie Kurtz are gearing up to file their first tax return as a married couple.

Typically, couples grapple with the financial pros and cons of filing separately or jointly. Though either way, they tell the IRS they are married.

However, for Ruth and Connie, prominent gay activists who were married last summer in New York after the state approved gay marriage, income taxes are far more fraught. The U.S. government does not recognize their marriage. By law they must file their federal income tax returns individually.

The trouble is, they believe that to do this would be a lie.

"My taxes are usually at my accountant by beginning of February," said Connie, 75, in telephone call with The Huffington Post late last week. "I can't seem to pull it off. I keep thinking about what should we do. What about the legal part?"

The tension between what is legal and what is truthful when it comes to taxes and gay marriage is in the spotlight this tax season, as an increasing number of states -- six plus Washington, D.C. -- sanction same-sex unions.

While there are no statistics available on the number of gay married couples who do file joint federal income taxes, a website launched last April called Refuse to Lie offers advice and testimonials from couples who have decided to defy the law.

"[Federal income tax forms] tell gay people to discriminate against themselves," said Nadine Smith, who founded Refuse to Lie and is the director of the gay advocacy group Equality Florida. "We are not going to treat our marriages like they don't matter."

The gay rights community is divided on the issue, however. Many say that following the law when it comes to taxes is the first priority for married couples.

"If you get audited and they discover that you should have filed separately, you could owe them money plus the interest," said Bruce Bell, a spokesperson with the Gay & Lesbian Advocates & Defenders, a legal rights organization. "You're breaking the law and if you're caught, you will pay."

It's not clear that anyone actually gets caught, however. The Internal Revenue Service does not ask for gender on tax returns. And it's not always easy to tell if a couple is same-sex or not (Ruth and Connie? Jamie and Pat?)

"I have never once, in filing returns for heterosexual couples, seen the IRS question if someone is married," said Tina Salandra, an accountant who works extensively with same-sex couples in the New York area. "The IRS has never asked for a marriage certificate, and the same is true for divorce."

Other accountants reached by The Huffington Post said that while it's against the law for same-sex couples to file as married for their federal tax returns, it is unlikely the IRS would investigate.

Of course, it's still a risk, particularly as the issue gains national attention. "There could be some cross-checking in regard to filing status with the marriage license to see if [the couple] used the proper filing method," said Donald Anspauch Jr., an enrolled tax agent in West Hollywood, Calif., who has been doing tax returns for more than 20 years.

The IRS for its part would not comment on whether it investigates tax returns based on marriage, but reiterated its support of federal laws.

"The IRS follows the federal Defense of Marriage Act (DOMA) and as such, same-sex partners cannot file their federal income tax returns using the married filing jointly or the married filing separately filing status," said IRS spokeswoman Sara L. Eguren in an email.

Bottom line, if a tax return is unlawfully filed, it will be rejected by the IRS. Each person must re-file individually and could be on the hook for penalties and accrued interest on an old tax bill. Anspauch said it can take more than a year for the IRS to kick back a return, which can add up to significant interest.

In other words, that little tax bill could become a very big tax bill.

Financially, gay couples who are married in states that sanction their union face a double whammy at tax time. Federal returns must be filed individually, but state income taxes must legally be filed as married, either as a joint tax return or as "married filing separately." This typically means that a same-sex couple must fill out a dummy joint federal tax form in order to generate the figures that are necessary to file a state tax return as a couple. In practice that means completing four tax returns: one dummy federal return, one state return and two individual federal returns.

Anspauch said same-sex couples' tax returns cost around $1,200 to prepare because of the paperwork, time and level of detail it takes to complete. For a married opposite-sex couple, a similar return might cost $500 to prepare, he said. "It's like making your mama's favorite cake recipe: you have to pay attention to detail."

Ruth and Connie, the New York newlyweds, were profiled in a 2010 documentary and have spoken widely on gay civil rights and marriage. They are still weighing the risks (tax fraud and penalties) against the benefits. "We are totally supportive of refusing to lie, but it's illegal for us," Connie said.

Married couples who file together do not necessarily have a financial tax advantage. In cases where both spouses are high earners, filing together could throw them into a higher tax bracket. For couples with more unequal incomes -- say, if one spouse takes care of a child and does not work outside the home -- there are clear benefits.

Melba Abreu and Beatrice Hernandez were married in 2004 in Massachusetts, the first state to legalize same-sex unions. Melba, 56, and Beatrice, 50, said they forfeited $25,359 between 2004 and 2008 in federal tax refunds.

"The inability to file our taxes according to our civil status has very practical implications for us," Beatrice said in a phone call. "It not only represents the loss of the earnings, it has a place in our future years because [of retirement]."

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