Federal Tax Consequences of Civil Unions

AuthorPatricia A. Cain
PositionAliber Family Chair in Law, University of Iowa
Pages387-408

    Aliber Family Chair in Law, University of Iowa. Special Thanks to my research assistant, Melissa Goodman, for timely and efficient research.

Page 387

I Introduction

On July 1, 2000, Vermont's Civil Union law took effect.1 In the following twelve months, Vermont officials recorded 2,479 civil unions.2

Only 502 of these unions occurred between couples who are residents of Vermont.3 Such couples, although not called "spouses" under the law, experience all the same benefits and burdens of marriage that Vermont spouses experience within the state of Vermont.4 In addition, the only way to dissolve a civil union is through a judicial proceeding exactly like a divorce.5 Extra-territorial recognition of civil unions is as yet an unresolved issue.6 Federal recognition of civil unions has also not yet been tested.

In 1996, Congress enacted the Defense of Marriage Act (DOMA), which provides, in part that:

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word "marriage" means only a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sexPage 388 who is a husband or a wife.7

Thus, if and when any state recognizes same-sex marriage, "same-sex spouses" will not be recognized as "spouses" for purposes of federal tax law if DOMA remains good law.8

Some have argued that DOMA is unconstitutional.9 Testing DOMA's constitutionality, however, is problematic. Since no state in fact recognizes same-sex marriage, there are no same-sex spouses to challenge the application of the law to them. Given the Supreme Court's narrow view of "standing,"10 some have opined that the provision cannot yet be tested.11

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In this article, I describe the application of federal tax law to taxpayers who are recognized as spousal equivalents under Vermont's civil union laws. If DOMA does not apply to such taxpayers, and there are certainly strong arguments that it does not,12 then federal tax law will have to take into account the aspects of civil union relationships that I describe in this article. On the other hand, if the IRS argues that DOMA does apply to any of the situations described in this article, then the taxpayer in such a case will have standing to challenge the constitutionality of DOMA.

Vermont couples who fit within any of the situations I delineate in this article should be interested in the possible tax outcomes that I describe. In addition, public interest lawyers, interested in furthering the cause of lesbian and gay equality, should familiarize themselves with the intricacies of the tax law that I discuss in this article. Vermont couples who are parties to a civil union are in an ideal position to challenge the discriminatory aspects of federal tax law and perhaps the constitutionality of DOMA as well. Same-sex couples in other states may also be able to mount such challenges so long as their states recognized the legally binding nature of their relationships, or, through state law, assign to them responsibilities and benefits similar to those assigned to spouses.13

II State Law Sometimes Determines Federal Tax Consequences
A Family Relationships

There is no federal law of marriage and domestic relations.14 Federal tax law, however, often relies on concepts such as marriage,15 divorce,16Page 390 parent-child relationships,17 stepchildren,18 children by adoption,19 mothers-in-law,20 and other family relationships. In order to determine who fits within these categories, federal tax law must rely on state family law.21 Thus, for example, the relationship of husband and wife is determined by state, rather than federal, law.22

The IRS explains: [t]he marital status of individuals as determined under state law is recognized in the administration of the Federal income tax laws. Therefore, if applicable state law recognizes common-law marriages, the status of individuals living in such relationship that the state would treat them as husband and wife is, for Federal income tax purposes, that of husband and wife.

The foregoing position of the Internal Revenue Service with respect to a common-law marriage is equally applicable in the case of taxpayers who enter into a common-law marriage in a state which recognizes such relationship and who later move into a state in which a ceremony is required to initiate the marital relationship.23

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As a technical matter, parties to a civil union are not married. Thus, they cannot file joint returns.24 Even if they were married, DOMA would prevent their marriage from being recognized for purposes of federal tax law.25 Nonetheless, since parties to a civil union are treated the same as spouses under Vermont law26, a party to a civil union will have "stepparent" and "in-law" relationships that unmarried taxpayers generally do not have.27 In addition, if two lesbians have registered their civil union and one of them then gives birth to a child, the other partner can argue that she is presumed to be the other parent, relying on a statutory provision that presumes a husband to be the parent of a child born to his wife.28 For example, if Betty and Alice are parties to a civil union in Vermont and then Alice gives birth to a child, Vermont law will presume that Betty is the other parent. In this event, since Betty is recognized as a parent under state law, she should also be recognized as a parent under federal tax law.

In the remainder of this section, I will describe several situations in which Vermont Civil Union law creates family relationships that can make a difference under the federal tax laws. In all of the situations I describe below, either DOMA does not apply because it is limited to true same-sex marriage cases or it does apply in which case the taxpayer has standing to challenge DOMA's constitutionality. Although I do not develop the constitutional argument in this section, I suggest here that each fact situation presents an extremely strong case for recognition of the familyPage 392 relationship because the relationship is real. Vermont law creates real family relationships with real consequences.

I do not mean to suggest that same-sex committed relationships outside Vermont are not "real." I simply mean to stress the fact that the legal consequences of a civil union are different from the legal consequences that flow from other domestic partner relationships. In Vermont, the state imposes legal responsibilities on married couples29 and, similarly, on couples who are parties to a civil union.30 By contrast, a domestic partner couple in other states may have contracted for similar responsibilities, but those responsibilities are imposed as a matter of contract law,31 not as a matter of state family law.32

Even if the couple has not contracted for such responsibilities, they may feel those responsibilities as moral obligations. Moral obligations, in my view, can be as "real" as those imposed by state law. The IRS, however, takes a different view of the matter. For example, no matter how morally obligated I may feel to support my indigent mother, the IRS will treat my support payments to her as taxable gifts to the extent they exceed $10,000 a year.33 That is because, in the view of the IRS, moral obligations do not equal state-imposed obligations of support.34

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Since even the IRS would have to agree that obligations imposed by state family law are "real," parties to a Vermont Civil Union are ideally situated to challenge any nonrecognition of their relationships by federal tax law as violative of equal protection.35 A taxpayer who is a party to a civil union in Vermont is not just "similarly situated" to a married taxpayer in Vermont, but rather is in exactly the same situation as a married taxpayer.36 Thus, to deprive a Vermont taxpayer of any benefit linked to one of the family relationships I describe in this article raises a plausible equal protection claim.37

1. Parent-child Relationships

There are no Code provisions or published regulations or rulings that define son or daughter, child or stepchild. Tax authorities may think the definitions of these terms are obvious, but in a changing world, nothing is obvious about family relationships. For good reason, the IRS has always relied on state law definitions of family relationships.38 In recent years, state law definitions have become hotly contested. The availability of modern reproductive technology has contributed to the contest.39 Gay and lesbian families have also contributed their share to the ongoing debate over who is a family.40

a Presumption of Parenthood

As noted above, Vermont law provides that a "person alleged to be a parent shall be rebuttably presumed to be the natural parent of a child if . . . the child is born while the husband and wife are legally married to each other."41 The civil union statute explicitly provides that: [the] rights of parties to a civil union, with respect to a child of whom either becomes the natural parent during the term of the civil union, shall be the same as those of a married couple, with respect to a child of whom eitherPage 394 spouse becomes the natural parent during the marriage.42

Thus, as asserted above, if Alice and Betty enter into a civil union and then Alice gives birth to a child, Betty should be presumed to be the other parent. Although the parentage statute states that the presumption is rebuttable,43 the statute provides no hint as to how the presumption might be...

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