Revenue Ruling 2013-17, DOMA and 2013 ReturnsGreta Hicks
May 27, 2014 — 3,246 views
The contents of Revenue Ruling 2013-17 may affect the preparation of 2013 income tax returns and may require that prior year returns be amended. After the Supreme Court struck down Section 3 of the federal Defense of Marriage Act (DOMA) as unconstitutional in the case of United States v. Windsor, the Internal Revenue Service (IRS) issued Revenue Ruling 2013-17 to clarify the tax treatment of same-sex couples who were legally married in a state allowing the marriage of same-sex individuals
The ruling also answers the question, “What if they now live in a state that does not issue marriage licenses to same-sex couples?” In defining “marriage,” the IRS follows the law of the state where the marriage took place and allows all tax benefits of marriage even though the couple may now live in a state that does not have a marriage provision for same-sex couples.
All Internal Revenue Code (IRC) provisions that apply to opposite-sex couples also apply to same-sex couples. Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an individual retirement account (IRA), and claiming the earned income tax credit or child tax credit. If the couple decides to file separately, all married filing separately limitations and provisions would apply, such as limitations on capital loss carryovers and claiming the earned income tax credit or child tax credit. IRA contributions will be affected if the spouse participates in a plan.
In reading through Revenue Ruling 2013-17, it appears that just as the IRS follows state law regarding separate or community property for opposite-sex couples, the IRS applies that same reasoning to same-sex couples living in separate/ community property states. A mountain of information is available on the IRS website under FAQs, such as “Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law.” However, the IRS has a separate set of FAQs for individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions or other similar formal relationships that are not marriages under state law. See “Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions.”
These changes may also cause a potential ethical problem for the return preparer. Are we now put into the position of determining who is “legally” married, and what type of documentation, if any, do we request from our clients? Typically when an opposite-sex couple announces their marriage to the return preparer, the response is “what date?” We normally do not require a copy of the marriage license. For same-sex couples, asking for a marriage license seems appropriate, but do the tax preparation ethics rules require us to go farther and determine the legality of “marriage” in the state issuing the license?
The American Institute of CPAs (AICPA) Statement on Standards for Tax Services No. 3.6 states, in part: The preparer’s declaration does not require a member to examine or verify supporting data; a member may rely on information furnished by the taxpayer unless it appears to be incorrect, incomplete or inconsistent. … Although a member has certain responsibilities in exercising due diligence in preparing a return, the taxpayer has the ultimate responsibility for the contents of the return.
Statement on Standards for Tax Services No. 1.5.a states, in part: A member should not recommend a tax return position, or prepare or sign a tax return taking a position, unless the member has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.
There is also a potential ethical problem regarding any needed amended returns. Statement on Standards for Tax Services No. 6.5 states: If a member is requested to prepare the current year’s return and the taxpayer has not taken appropriate action to correct an error in a prior year’s return, the member should consider whether to withdraw from preparing the return and whether to continue a professional or employment relationship with the taxpayer. If the member does prepare such current year’s return, the member should take reasonable steps to ensure that the error is not repeated.
Hopefully, we will have more guidance regarding “marriage” before the filing season arrives. Stay tuned.