Death and taxes

I'll be filing Sandy's final tax return this year. I've done her taxes for fourteen years, so it's not a new task for me. But last year, the IRS changed the rules for couples with registered domestic partnerships in states that have community property laws. These new rules applied to couples in California, Washington, and Nevada -- and they only apply to those of us who are denied federal recognition of our relationship.

Some in the LGBT community claimed this was a big win, because our community property laws should apply to our relationships.  But the implementation is discriminatory, oppressive, and downright confusing.

We're supposed to do something called income-splitting. That is, we're each supposed to report half of our joint incomes, claim half of our joint deductions, and pay half of our joint taxes. For example, if Sandy made $70,000 in 2010 and I made $10,000, we'd each claim $40,000 and pay taxes on that amount. Anyone who's paid attention to the so-called "marriage penalty" debate knows that couples filing together fare better on their tax bill if one partner makes significantly more than the other, so for registered domestic partners where one is a stay-at-home parent, the tax benefit of income-splitting can be substantial. I personally know couples who have gained $6000 or more a year in tax breaks through this new ruling.

But it's pisses me off. The IRS ruled that they need to honor the state's community property laws, but because of the federal DOMA, they can't change the forms to acknowledge our relationships. I'm supposed to file half of Sandy's income as mine, but there's literally no field on my form for her name. If we use the Spouse field, we're committing fraud. There's also no box to check that says we're in a registered domestic partnership; we're supposed to put a note at the top of the form that says "Filed pursuant to IRS memo xxxxx -- xxxxx blah blah blah."

We've wanted marriage with both state and federal recognition, and I'd love to be able to file jointly. Instead, Sandy and I both considered this half-measure offensive. And when they first rolled this out for the 2010 tax year, they weren't giving much guidance on what to do if one of the partners is self-employed, as I am. It all became very messy. Not all IRS agents knew about the ruling, either, so plenty of people who complied were getting their returns sent back to them as invalid. Additionally, most CPAs and tax preparers knew little or nothing about how to do the returns, and none of the electronic tax applications are set up to handle it. So while the IRS is pushing taxpayers to e-file, couples in registered domestic partnerships in these states have been told we have to file on paper.

I think it was Ben Franklin who said that nothing was certain
but death and taxes. But I'd say there are three things that
are certain: death, taxes, and Sandy laughing. Oh, and rain
in Seattle. I suppose the list could get rather long, really.

I'd already sent in Sandy's return last year when we learned that the IRS had declared income-splitting mandatory for 2010. They hadn't notified anyone, and there was little in the way of instruction on how to do it. I decided to ignore the ruling, leave Sandy's tax return as it was (she was expecting a refund and was anxious to get it, as she was feeling mighty poor on disability), and file my return the way I always had. I figured I'd use income-splitting for our 2011 returns.

And then Sandy died. In the middle of the year. Income-splitting gets very messy when you include self-employment and a death halfway through the year. It's ludicrous. It would cost me a few hundred dollars to hire a CPA to do this (when I've always done our taxes myself), I'd get maybe a few dollars extra back, and it would be incredibly stressful. After learning that the IRS has never actually articulated a penalty for not complying with this income-splitting business, and knowing that I might even relish the opportunity to sue over the undue burden this ruling places on same-sex couples, I decided to just file our taxes the way I always have.

It's possible I'd have done the same thing even if Sandy had lived, just because the requirement is so onerous and I'm so contrarian. And Sandy would have been fine with that. When I discussed it all with her last year, after I'd learned that we were supposed to have done this for 2010, she said she didn't care what we did. Taxes were my department and she trusted my judgment. And then she went back to reading her book.