OCEAN CITY — For same-sex couples, gaining the right to marry is just the beginning of a host of new challenges with federal and state taxes, estate planning and retirement plans.
At the Maryland State Bar Association’s Annual Meeting on Thursday, a panel of attorneys painted a picture of a situation in flux as more states recognize same-sex unions while federal law strictly refuses to do so.
“This is about as interesting as tax sessions go,” joked panelist Jeffrey A. Markowitz, an attorney with Miles & Stockbridge P.A. in Baltimore.
Maryland legalized same-sex marriage in March, although the issue is going to be put to voters in November after opponents secured enough signatures to force a referendum. Additionally, in a May ruling, the state’s high court recognized valid, out-of-state same-sex marriages for purposes of divorce.
Under federal law, however, the Defense of Marriage Act still defines marriage as being only between a man and a woman. On IRS tax forms and anything related to them that references a “spouse,” same-sex marriages are not recognized.
“So, if you’re in a same-sex marriage, because it’s not between a man and a woman, it’s not a marriage under DOMA,” said Katrina C. Kamantauskas-Holder, an attorney on the panel. “And because you’re not married to someone of the opposite sex, that means that you don’t have a spouse.”
Until there is a legislative change or a court ruling otherwise, Maryland is tied to federal law for tax purposes, said panelist Wallace A. Eddleman, deputy director comptroller of the Maryland revenue administration division. As a practical matter, he said, that means same-sex couples cannot file a joint return and would not be recognized as spouses.
If state tax is decoupled from the federal form, same-sex couples would most likely have to prepare a second, “as-if” federal return to file with their state taxes. Eddleman likened it to “keeping two sets of books,” which is how it has been done in other states.
“Just for Maryland, people would have to prepare a federal return, ‘as-if’ they were a married couple,” Eddleman said.
The session was sponsored by the MSBA’s Tax Section Council and chaired by James G. Dattaro of Selzer Gurvitch, Attorneys at Law.
Panelist David C. Dembert, with Jacobs Dembert P.A., said a same-sex couple could face double taxation on their estates under DOMA. Because the IRS treats them as two unrelated individuals, when one spouse dies, the survivor must pay a death tax on the estate, and if the survivor’s estate ultimately went to similarly unrelated individuals, they would have to pay a second time.
However, Markowitz said, it could be possible to take advantage of federal law to avoid some taxes that heterosexual couples might have to pay.
“There is good and bad here,” Markowitz said.
One example would be selling property to a same-sex spouse at a loss for tax purposes, which would only be possible since IRS views the spouses as unrelated individuals, he said.
“If the federal government is going to leave this out there,” Markowitz said, “you might want to take advantage of it.”