Bloomberg -- Proceed with care. That’s what bankers, accountants and wealth managers are telling same-sex couples considering financial changes because of the Supreme Court’s rejection of a federal law denying them benefits.
After years of fighting for equal tax-and-benefit treatment, married couples now await guidance on how the Internal Revenue Service and federal agencies will implement the ruling. Without it, those who file for tax refunds may end up paying more, not less.
Married couples in states that don’t recognize gay marriage and those who delayed filing their 2012 returns in anticipation of the court’s decision in June are pressing for clarity. Spouses computing whether to seek refunds from prior returns see the three-year statute of limitations for amendments closing as they look to the IRS for details.
“We are desperately awaiting that guidance,” said Shari Levitan, chairwoman of the New England private wealth services group at Holland & Knight LLP in Boston. “The major question for clients is for returns that are still open, and even those that are beyond the statute of limitations, can they be amended?”
Without IRS guidance, couples who extended their 2012 return deadline to Oct. 15 and who live in a state that doesn’t recognize their marriage will probably file their federal returns jointly and disclose they are doing so based on the court’s decision, Levitan said. She serves high-net-worth clients, about 10 percent of them same-sex couples.
“That’s a risk,” because the IRS could deem they filed incorrectly, she said.
The IRS said June 27 that it was reviewing the court’s decision and would “move swiftly to provide revised guidance in the near future.” The agency referred to this statement when asked yesterday to comment on the timing of any guidance.
Amending returns may subject some same-sex couples to higher taxes because of the so-called marriage penalty, which generally affects taxpayers when one or both are in the top income-tax bracket, or if both make relatively similar salaries. It also could open tax returns to scrutiny.
“You have to make sure there’s nothing else in your return that would cause the IRS to look at it,” said Nanette Lee Miller, co-head of New York-based accounting firm Marcum LLP’s practice for gay, lesbian, bisexual and transgender couples.
While the IRS generally hasn’t looked at all returns within the three-year statute of limitations when people amend for a particular year, they could, Miller said.
“That’s why a lot of people are waiting for guidance,” she said.
The U.S. high court struck down the core of the 1996 Defense of Marriage Act, which defined marriage as a union between a man and a woman. The decision didn’t legalize same-sex marriage nationally, leaving regulators to answer questions about residency and retroactivity as it applies to federal tax returns, refunds and benefits.
Same-sex married couples’ finances were complicated by DOMA. They were able to file jointly in states that recognized gay marriages while having to file individual federal tax returns because the U.S. government treated them as single. The division between federal and state law also affected employee benefits, estates and transfers of assets between spouses.
There are more than 130,000 married, same-sex couples in the U.S., according to estimates from the 2010 Census. They have the right to marry in 13 states and the District of Columbia.
A primary reason for same-sex couples to amend their returns may be if an individual received employer-provided health coverage for a spouse and was required to include the value of that insurance as income, and pay taxes on it, which other married couples weren’t required to do, said Derek Dorn, a partner at Davis & Harman LLP in Washington.
In that case, people may want to wait and see if the IRS will require them to change their filing status to married, which could trigger higher total taxes for prior years, Dorn said. He also is outside counsel to the Human Rights Campaign, which advocates for lesbian and gay Americans.
Spouses each making $100,000 or more a year probably will be subject to a marriage penalty because of how income-tax brackets are set for couples compared with singles. By comparison, where one person earned $175,000 and the other $25,000, they would probably see a benefit to filing jointly.
“You may have some good for some couples but also some bad lurking out there,” said Levitan of Holland & Knight.
Advisers including Levitan want the IRS to clarify what happens when couples reside and own a home in a state such as Massachusetts, which recognizes gay marriages, as well as a vacation property in Florida, which doesn’t.
All Financial Planning articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.