DOMA Amended Return Clarification under Revenue Ruling 2013-17

Posted on November 12, 2013 · Posted in Industry News, Latest Updates

By CSEA Member Cynthia Leachmoore EA

During the past two weeks I have had conversations Richard Goldstein from the Chief Counsel’s office regarding Revenue Ruling 2013-17 that provides guidance for same-sex married couple filings following the Supreme Court ruling on June 26 2013. The Ruling is very informative and taxpayer friendly but does not address all issues in particular involving amending open-year returns. If you have not read the Ruling you should do so before advising on or preparing same-sex returns.

The following information in numbers 1-4 reflect a very liberal position that the Service is taking with regard to amended returns:

1) Counsel states that for tax years 2010-2012 (or those with a protective claim) amended Single to MFJ or MFS returns are only required to seek refunds for actual direct benefits denied under DOMA.

2) Furthermore one spouse can claim a denied benefit on a MFS return and the other spouse does not have to amend to match the transaction. Counsel has stated for example that an amendment to claim the deduction for alimony paid will require the claiming spouse to use MFS on his/her return – but the recipient spouse DOES NOT have to amend and will not be taxed. This is also true for amending to claim a refund for self-employment taxes paid by the non-earning spouse on community property income. The non-earner can get the refund (on an MFS return) and the earner spouse can leave the original return as is.

While it may seem too good to be true the Service’s formal position is that ANY amendment (using MFS only) that benefits one spouse but could under normal circumstances increase the tax liability of the other spouse does not have to be reported by that other spouse and he or she will not be assessed.

3) Other non-DOMA amendments allow the retention of the Single filing status originally used  regardless of secondary tax-generating issues that might arise in jointly filing (income-dependent credits and deductions AMT etc.).

4) Counsel has said that in effect the Service is trying respect the original filing positions taken on taxpayer’s returns that were following the laws as they were written and interpreted at the time.  Therefore the Service will allow each spouse to choose independently whether or not to amend for the year(s) at issue.

Note that the preceding clarification is only applicable for affected and open tax years from 2012 going backward and all future returns will follow normal amendment procedures.

Other questions I posed he could not answer and was told to submit for further guidance include:
1) If a divorcing spouse under age 591/2  had to cash out pension settlements because QDRO did not apply would it be permissible to amend for early withdrawal penalty relief?
2) If an inheriting spouse (not required by age to use RMDs) had to use non-spouse beneficiary rules for IRA’s could the spouse now convert whatever monies are left into a spousal IRA?
3) Do carryover second parent adoption credits that were DOMA “bonuses” have to cease on returns going forward?
4) What about basis “gained” in a DOMA divorce when one spouse buys out the other? Can that basis be used when the home is sold?

Finally I asked him about estimated tax relief and he feels that guidance on this issue may not be forthcoming. His opinion is that it is mostly a “non-issue” for those in CP states though those with separate property or those in separate property states may get penalized. His suggestion is that practitioners and taxpayers that are affected (strictly by the timing of the Supreme Court ruling and for at least the first two quarters) ask for penalty forgiveness under the “reasonable cause” exception. He strongly feels that this will work and that it is and I quote “malpractice” for practitioners in this situation not to do so.

Of course this does not help the self-preparer who is ignorant of both the law and the remedy. I hope that the Service will indeed address this issue and provide a uniform procedure to grant the penalty relief.

Cynthia Leachmoore EA is Chair of the CSEA Education Committee and President of the Mission Chapter. She’s a frequent lecturer and has published several articles on same-sex tax issues facing both taxpayers and the practitioners that assist them. She shares a practice with her husband Greg in Santa Cruz County.