IRS Recognizes Same-Sex Marriages in All States

irs-sealThe U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that legally married same-sex couples will be treated as married for federal tax purposes. In other words, all marriages will be treated identically for all federal tax purposes. The ruling is in response to the June 26 decision in U.S. v. Windsor that invalidated section 3 of the Defense of Marriage Act (DOMA).

The ruling applies regardless of the residence of the married couple – whether that is in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

The ruling applies to federal tax provisions where the terms “marriage”, “spouse”, “husband”, “wife”, or “husband and wife” is a factor. Examples of such instances include filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit. The IRS will begin applying the guidance on September 16, 2013.

Any same-sex marriage legally entered into in any state, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status. Couples may also file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

The IRS indicated that further guidance will be released to allow streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Additional guidance will also be forthcoming on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the September 16 effective date.

Read the Revenue Ruling here: Revenue Ruling 2013-17

Read the IRS FAQ here.

Elmore Leonard’s Tax Connection

Elmore LeonardThe great fiction writer Elmore Leonard passed away yesterday at the age of 87 years old. Mr. Leonard published over 40 novels and numerous short stories in a writing career that spanned five decades. He started as a writer of westerns and became one of the most loved crime novelists of his time. His mastery of dialogue won him praise from reviewers and fellow authors. Martin Amis, Kinky Friedman and Joe Queenan all reviewed Leonard novels for the New York Times.

He was a darling of Tinseltown too. Several of his stories were adapted into film more than once, including “The Big Bounce” and “The 3:10 to Yuma.” There was no trouble finding Hollywood A-Listers to star in his films either. Paul Newman, Gene Hackman, John Travolta, Jennifer Lopez, George Clooney, Russell Crowe, Danny DeVito, and Vince Vaughn are only a handful of the stars who have played characters created by Leonard.

So what’s the tax hook to this homage? There has to be one right? There is.

Leonard’s novel Pagan Babies features “Father” Terry Dunn, who is living in Rwanda to dodge an indictment for Federal tax fraud. As the story moves along we find out that Terry may not be the man of the cloth that he holds himself out to be, and when he returns to his hometown of Detroit he runs in to a few other problems to go along with his tax situation. You’ll have to read the book to find out how it all plays out. Pagan Babies may not be the finest work of Leonard’s career – it did offer popular exposure to the devastating violence that plagued Rwanda for many years – but it gave us an excuse to pay public homage to one of our favorite writers.

Read Elmore Leonard’s 10 Rules of Writing here.

DOD Adopts Uniform Policy on Same-Sex Marriage

Last week Secretary of Defense Chuck Hagel announced that the Armed Forces (Army, Navy, Air Force, Marine Corps, Coast Guard) will comply with the U.S. Supreme Court’s decision in U.S. v. Windsor ruling by September 3, 2013. Windsor declared Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.

Sec. Hagel explained that the domestic partner provisions put in place in February will be supplanted by official recognition of same-sex marriages. Recognizing that many same-sex couples have to travel to another jurisdiction to marry, the Department of Defense has amended Department of Defense Instruction 1327.06 “Leave and Liberty Policy and Procedures” to allow “non-chargeable marriage leave where a Service member is a part of a same-sex couple and is assigned to a duty station located more than 100 miles from a U.S. state (or the District of Columbia) that allows same-sex couples to get married.”  Eligible Service members may be granted non-chargeable leave for up to 7 days if they are assigned within the continental U.S (CONUS).  If they are stationed outside the continental U.S. (OCONUS), they will be granted non-chargeable leave for a period of up to 10 days. Same-sex couples will be able to use this nonchargeable marriage leave once in their career.

The memo indicates that there could be more changes to follow, as the Joint Benefits Review Working Group is focusing its efforts on extending spousal benefits to same-sex spouses.  It also gave a firm timeline for enforcement stating that all entitlements are retroactive to the date of the Supreme Court’s decision, June 26, 2013.  

Read the memoranda here:
Extending Benefits to Same-Sex Spouses of Military Members

Further Guidance on Extending Benefits to Same-Sex Spouses of Military Members

Goodbye 4-Day Weekend, IRS Will Be Open on August 30th

Bye ByeIRS employees hoping for an end of summer vacation will have to settle for a measly 3-day Labor Day weekend this year. As we suggested may happen in July, the IRS has officially cancelled the furlough day scheduled for Friday, August 30th, 2013.On a brighter note they’ll get another day of pay to spend on the festivities.

The press release leaves open the possibility that the IRS may require an additional furlough day before their fiscal year ends on September 30th. So far, the IRS has closed for only three of the five furlough days initially proposed in the wake of the Federal sequester.

All services will be available on the normal Friday schedule.

$2M Tax Lien not a Character Issue for F. Lee Bailey

oj3F. Lee Bailey is one of the most renowned trail attorneys of the past 50 years. He rose to fame when he convinced the U.S. Supreme Court to order a retrial for Dr. Sam Shepard (the alleged inspiration for The Fugitive). His other famous clients have included Patty Hearst, the Boston Strangler and O.J. Simpson.

His legal career went of the tracks in 2001 when he was disbarred in Florida (and later in Massachusetts) for mishandling client funds. In 2005 he tried and failed to regain his Massachusetts license.

Not one to ever give up, Bailey took and passed the Maine bar examination in 2011 and applied for a law license. However, the Maine Board of Bar Examiners denied his application on the basis that Bailey had not proved by “clear and convincing evidence that he possesses the requisite honesty and integrity” to practice law. The key factor in their ruling was “an income tax debt of nearly $2,000,000 that was and remains in litigation on appeal.”

Bailey appealed the board’s decision to the Maine Supreme Judicial Court. The high court found that the “the tax debt currently in litigation should not prevent a finding of good character and fitness to practice law.” This was good news for F. Lee (and anybody else who might be feeling blue about their tax problems).

The high court’s order paved the way for Bailey to return to the practice of law. We will follow his case to see if he prevails on the lien but for now the only question is who will be his next high profile client.

Read the Supreme Court’s first order here:
F. Lee Bailey v. Board of Bar Examiners

UPDATE: Thank you Peter Reilly CPA (follow him @peterreillycpa) for mentioning us in your recent Forbes blog post. To answer your question about the potential for appeal, the Board of Bar Examiners motion for reconsideration was denied by the high court on June 13, 2013 – six days after the order above. I believe that cleared the final obstacle to Mr. Bailey’s readmission.

Read the order on the motion for reconsideration here:
F. Lee Bailey v. Board of Bar Examiners, Motion on Reconsideration