A man about to have a heart transplant was offered the choice of either a heart from a 26-year-old marathon runner or the heart of a 62-year-old IRS agent. He picked the IRS agent’s heart because he was certain it had never been used before. Are you done rolling on the floor laughing? Good, now it’s time to pay attention. The IRS doesn’t care if you are married in Washington, D.C. We all know this, right?
In early March, the first gay couple was married here in the District. It was a very moving moment for me and my partner to watch, but that moment was short lived as a small wave of fear crept over me. So many in our community have been registering as domestic partners, eager to get the benefits of marriage, without fully understanding the massive tax implications that will now befall them. And now that we can legally marry, I fear this problem will just get worse.
You see, as a D.C. tax accountant, I have spent the better part of the past year and a half fixing some pretty big errors that have come across my desk with respect to domestic partnerships. Many of these errors come from accountants, outside the D.C. Metro area, who don’t understand the nuances of D.C. tax code, or they come from people who have “self prepared” their taxes in prior years with no institutional knowledge of tax preparation. Some of these errors have cost gay couples thousands of dollars in taxes, penalties and interest and all of them could have been avoided with some simple planning or research.
The problems we encounter are both D.C.- and IRS-related. Once you are either registered as domestic partners or legally married you must start preparing your D.C. taxes together with your partner or spouse. Your options no longer include filing as “single” for two very good reasons. Your spouse will be upset that you are telling people you are “single” and the D.C. government is going to be equally upset because you will be in violation of the District tax laws.
Also, even though D.C. says “I do,” the IRS does not. Before you run down to the bank, title company or real property office and begin tossing your names onto each other’s property titles, deeds, mortgages, bank accounts and investments, you need to consult a professional. This isn’t like a heterosexual marriage and you may be creating irreversible federal gift tax situations. Remember, the IRS doesn’t recognize your relationship in the same way that D.C. does, and therefore your marriage rights, from a tax perspective, do not extend beyond our city limits.
Does all of this infuriate me? Of course it does. But rather than staying angry I have been telling those who come to me for advice that we need to arm ourselves with the best information. At the end of the day it may be a while before we can be globally married and have the IRS be as nice to us as they are to heterosexual couples, financially speaking. But until that day comes there is no reason to get into trouble.
Am I discouraging anyone from getting married because the tax implications are tough to navigate? No, I am not. Follow your heart but also listen to reason and rational thought. Let’s make sure we are all prepared for everything marriage means. The emotional part of marriage is not new to us, but the financial and legal implications are, and they should be something we all consider.
You would never buy a car or a house without doing a little research. Why would you get married without putting in the same effort?
Michael L. Fine, CSA is the owner and president of Finesse Tax Accounting, LLC. He was voted Business Person of the Year by the readers of the Washington Blade for 2006, 2007 and 2008. Reach him at email@example.com.