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Santa Clara Law Digital Commons
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1-1-1991
Same-Sex Couples and the Federal Tax Laws
Patricia A. Cain
Santa Clara University School of Law, pcain@scu.edu
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Recommended Citation
1 Law & Sexuality: Rev. Lesbian & Gay Legal Issues 100
Articles
Same-Sex
Couples
and
the
Federal
Tax
Laws
Patricia
A.
Cain*
The
Internal
Revenue
Code
is
premised
on
the
notion
that
we
are
all
independent
persons,
individually
responsible
to
the
government
for
paying
our
'fair
share"
of
the
tax
burden.
Professor
Cain
as-
serts
that
this
premise
is
false,
because
it
ignores
real
relationships
between
persons.
Although
Congress
has
made
some
adjustments
to
this
individualistic
premise
in
the
case
of
married
couples,
no
simi-
lar
adjustments
have
been
made
for
lesbian
and
gay
couples.
Pro-
fessor
Cain,
focusing
on
the
income
and
gift
-tax
treatment
of
"sup-
port
payments,"
argues
that
lesbian
and
gay
relationships
ought
to
be
accorded
the
same
degree
of
respect
under
the
Internal
Revenue
Code
as
marital
relationships.
I.
INTRODUCTION
Should
lesbian
and
gay
couples
be
allowed
to
marry?
This
question
has
recently
received
much
press
coverage.'
Although
many
same-sex
couples
live
in
committed
relationships
that
are
very
similar
to
those
of
married
*
Professor
of
Law,
University
of
Iowa.
I
am
indebted
to
my
colleagues
Joseph
Dodge,
Calvin
Johnson,
Larry
Ward,
and
Jean
Love
for
their
comments
on
an
earlier
draft
of
this
article.
Margaret
Menicucci,
J.D.,
University
of
Texas,
provided
excellent
research
assistance.
1.
A
recent
issue
of the
American
Bar
Association
Journal
included
a
debate
about
whether
ho-
mosexual
marriages
should
be
recognized
legally.
76
A.B.A.
J.
42
(January
1990).
In
1989,
the
Bar
Association
of
San
Francisco
passed
a
resolution
favoring
same-sex
marriages.
The
San
Francisco
Recorder
carried
stories
about
the
ensuing
debate.
See
Recorder,
Mar.
1,
1989,
at
1,
col.
2;
Recorder,
Mar.
6,
at
6,
col.
2,
Recorder,
Mar.
10,
1989,
at
6,
cols.
I
&
3;
Recorder,
Mar.
13,
1989,
at
6,
col.
2.
See
generally
Walter
Isaacson,
Should
Gays
Have
Marriage
Rights?
On
Two
Coasts,
the
Growing
Debate
Produces
Two
Different
Answers,
TIME,
Nov.
20,
1989,
at
101;
Philip
S.
Gutis,
Small
Steps
Toward
Acceptance
Renew
Debate
on
Gay
Marriage,
N.Y.
Times,
Nov.
5,
1989,
at
E-24,
col.
1;
Gay
Marriage:
A
Must
or
a
Bust?:
Thomas
B.
Stoddard,
Why
Gay
People
Should
Seek
the
Right
to
Marry,
&
Paula L.
Ettelbrick,
Since
When
Was
Marriage
a
Path
to
Liberation?
6
OUT/LOOK,
NAT'L
LESBIAN
&
GAY
Q.
8
(1989)
(companion
articles);
Thomas
B.
Stoddard,
Gay
Marriages:
Make
Them
Legal,
N.Y.
Times,
Mar.
4,
1989,
at
27,
col.
5
(guest
editorial
in
favor
of legalizing
lesbian
and
gay
marriages).
HeinOnline -- 1 Law & Sexuality: Rev. Lesbian & Gay Legal Issues 97 1991
LAW
&
SEXUALITY
[Vol.
1: 97
couples,
2
some
of
them
even
sanctioned
by
the
church,
3
no
state
in
this
country
has
ever
recognized
the
legality
of
a
same-sex
marriage.
4
One
of
the
arguments
put
forth
by
advocates
of
lesbian
and
gay
mar-
riage
6
is
that
same-sex
couples
should
be
entitled
to
the
same
tax
benefits
enjoyed
by
married
couples.
Often,
however,
advocates
of
this
position
overlook
the
fact
that
the
federal
tax
laws
do
not
always
bestow
benefits
on
married
couples.
Two-earner
married
couples,
for
example,
generally
pay
higher
income
taxes
than
they
would pay
if
they
could
file
as
single
taxpayers.
This
is
true
whether
or
not they
file
jointly
or
separately.'
The
amount
of
this
"marriage
penalty"
has
varied
over
the
years.
Taxpayers'
and
tax
scholars' alike
have
levied
attacks
against
the
penalty.
In
addition
to
the
"marriage
penalty,"
other
tax
detriments
that
married
couples
ex-
perience
are:
(1)
joint
and
several
tax
liability
on
a
joint
return;
9
(2)
the
2.
"
'Couplehood,'
either
as
a
reality
or
an
aspiration,
is
as
strong
among
gay
people
as it
is
among
heterosexuals."
PHILIP
BLUMSTEIN
&
PEPPER
SCHWARTZ,
AMERICAN
COUPLES
45
(1983).
This
book
is
based
on
an
empirical
study
of various
types
of
American
couples,
including
married
couples,
unmarried
heterosexual
couples,
and
lesbian
and
gay couples.
3.
See
Gutis,
Small
Steps
Toward
Acceptance
Renew
Debate on
Gay
Marriage,
N.Y.
Times,
Nov.
5,
1989,
at
E-24,
col.
1.
4.
The
exclusion
of
lesbian
and
gay
couples from the
legal
institution
of
marriage
has
been
tested
in
the
courts
of
several
states.
The
courts have
uniformly
rejected all
challenges.
See, e.g.,
Jones
v.
Hallahan,
501
S.W.2d
588
(Ky.
Ct.
App.
1973);
Baker v.
Nelson,
291
Minn.
310,
191
N.W.2d
185
(1971),
appeal
dismissed,
409
U.S.
810 (1972);
Singer
v.
Hara,
11
Wash.
App.
247,
522
P.2d
1187
(1974).
5.
Advocates
include
members of
the
straight
community
as
well
as
members
of
the
lesbian
and
gay
community.
Furthermore,
not
all
members
of
the
lesbian
and
gay
community
are
advocates
of
same-sex
marriage.
In
particular,
some
lesbian feminists
raise
objections
to
marriage,
because
of
its
historical
role
in
the
subordination
of women.
See,
e.g.,
Ettelbrick,
supra
note
1.
6.
Married
persons who
choose
to
file
separately
must
usually
compute
their
taxes
under
the
rate
schedule
provided
in
I.R.C.
§
1(d)
(1991).
This
rate
schedule
is
set
so
that
the combined
tax
bill
for
spouses
with
equal
incomes
will
be
the
same
whether
they
file
jointly
or
separately.
For
spouses
with
unequal
incomes,
filing
separately
may
actually produce
a
higher tax
bill.
On
the
other
hand,
if one
spouse
qualifies
for
head-of-household
status under
I.R.C.
§
l(b)
(1991)
(which,
for
a
married
spouse, includes
a
requirement
that
the
couple
not
live
together
for
the last six
months
of
the
tax
year), then
the
combined
tax
bill
of
the
spouses,
at
certain
income
levels,
will
be
lower
than
the
tax
that
would
have been
due
on
a
joint
return.
Nonetheless,
the
combined
tax
would
be
even
less
if
the
non-head-of-household
spouse
could
use
the
single
rates.
7.
See,
e.g.,
Druker
v.
Comm'r,
697
F.2d
46
(2d
Cir.
1982)
(upholding
the
rate
schedules
against
a
constitutional
challenge
that
they
produced
a
penalty
on
marriage),
cert.
denied,
461
U.S.
937
(1983);
Boyter
v.
Comm'r,
668
F.2d
1382
(4th
Cir.
1981)
(approving application
of
sham
transaction
doctrine
against
taxpayers
who
divorced
at
year
end
and
then
subsequently
remarried
solely
to avoid
paying
the
marriage
penalty tax);
Mapes
v.
United
States,
576
F.2d
896
(Ct.
Cl.
1978)
(upholding
constitutionality
of
marriage
penalty),
cert.
denied,
439
U.S.
1046
(1986);
Barter
v.
United
States,
550
F.2d
1239
(7th
Cir.
1977)
(upholding
constitutionality
of
marriage
penalty),
cert.
denied,
434
U.S.
1012
(1978).
8.
See
Pamela
B.
Gann,
Abandoning
Marital
Status
as
a
Factor
in
Allocating
Income
Tax
Burdens,
59
TEx.
L.
REV.
1
(1980);
Wendy
C.
Gerzog,
The
Marriage
Penalty:
The Working
Couple's
Dilemma,
47
FORDHAM
L.
REV.
27
(1978);
Boris
1.
Bittker,
Federal
Income
Taxation
and
the
Family,
27
STAN.
L.
REV.
1389,
1416-44
(1975).
9.
Couples
who
file
jointly
often pay
a
lower
combined
tax than
they
would
pay
if
they
filed
separately.
Signing
a
joint
return,
however,
can produce
a
tax
detriment
for
spouses who
later
find
themselves
liable
for
tax
underpayments
attributable
to
the other
spouse.
The
innocent
spouse
provi-
sions
of
I.R.C.
§
6013(e)
(1991)
provide
some
relief
from
this
detriment
in extreme
cases. See
gener-
ally
Richard
C.E.
Beck,
The
Innocent
Spouse
Problem:
Joint
and
Several Liability
for
Income
Taxes
Should
be
Repealed,
43
VAND.
L.
REV.
317
(1990).
HeinOnline -- 1 Law & Sexuality: Rev. Lesbian & Gay Legal Issues 98 1991
FEDERAL
TAX
LAWS
inability
to
recognize
losses
on
sales
between
spouses;'
°
and
(3)
numerous
tax
attribution
rules
that
treat
spouses
as
a
unitary
taxpayer."
Nonetheless,
married
couples
do
receive
considerable
tax
benefits.
Hus-
band
and
wife can
transfer
wealth
to each
other
free
of
income,
estate,
and
gift
taxes.
2
Employers
often
provide
important
fringe
benefits
to
the
spouses of
their
employees.
For
example,
the
nonemployee
spouse
may
be
included
in
the
employer's
medical
benefit
plan.
The
federal
tax law
ex-
empts
the
receipt
of
these benefits
from
income
taxation.'
3
When
married
couples
divorce,
income
tax
rules are
structured
to
allow
the
couple
to
unwind
their
property
entanglements
tax-free.
In
addition,
if
support
pay-
ments
are
to
be
made
subsequent
to
divorce,
the
spouses
can
effectively
bargain
in
advance
as
to
who
will
bear
the
income
tax
burden
of
such
payments.
4
Finally,
for
some
married
couples,
the
availability
of
the
joint
return
does
produce
a
tax
savings.'
5
None
of
these
specially enacted
tax
benefits
is
available
to
lesbian
and
gay
couples.
The
applicable statutes
explicitly
apply
only
to spouses.
Marital
status
is
determined
under
relevant
state
law.'
6
Were
states
to
change
their
marriage
laws
and
permit
same-sex
marriage,
then
same-sex
couples
could
no
longer
argue
that
the
tax
law
discriminated
against
them.
Upon
marriage,
they
would
become
subject
to
all
the
benefits
and burdens
of
the
tax
law
as
opposite-sex
married
couples
currently
experience.
An
10.
I.R.C.
§§
267,
1041
(1991).
11.
For
example,
I.R.C.
§
318
(1991)
requires
that
husbands
and
wives
(as well
as
other
related
parties)
be
treated
as
owning
each
other's
stock.
See
also
I.R.C.
§
453(e)
(1991)
(special
rules
for
an
installment
sale
to
related
party
followed
by
a
second
disposition).
12.
I.R.C.
§
1041(a),(b)
(1991)
provides
that
transfers of
property
between
spouses will
be
treated
as
gifts
for
purposes
of
the
income
tax.
Gifts
are
excluded
from income
under I.R.C.
§
102
(1991).
I.R.C.
§
2056
(1991)
provides for
a
100%
marital
deduction
for
transfers
of
wealth
to
a
spouse
at
death,
and
I.R.C.
§
2523
(1991)
provides
for a
similar marital
deduction
for lifetime gifts
between
spouses.
13.
See
I.R.C.
§§
105,
106
(1991).
14.
See
I.R.C.
§§ 71,
215 (1991).
For
a
good
history
of
the
evolution
of
divorce
taxation
rules,
see
Beverly
I.
Moran,
Welcome
to
the
Funhouse:
The
Incredible
Maze
of
Modern
Divorce
Taxation,
26
HARV.
J.
ON
LEGIS.
117
(1989).
15.
For
couples
in
which
only
one
spouse
earns
taxable
income,
the
joint
return
rates
produce
a
lower
tax
than
the
rate
for
single
taxpayers
would
produce.
See
Harvey
S.
Rosen,
The
Marriage
Tax
is
Down
But
Not Out,
40
NAT'L
TAX
J.
567,
571
(1987).
Rosen compares
the
marriage
penalty
and
subsidy
for
pre-1986
tax
rates
with
those created
by
the
1986
tax
rates.
Under
rates
in
effect
for
1988,
he
shows
a
$2,748
tax
saving
for
a
childless
married
couple
filing
a
joint return
provided one spouse
earns
$50,000
and
the
other
spouse
earns
zero
and
a
$705
tax
saving
for
the same
couple
if
the
secondary
earner's
wages
are
$10,000.
By
the
time the secondary
earner's
wages reach
$20,000,
how-
ever,
the
couple
will
be
paying
a
marriage
penalty
tax
of
$595.
(Note:
These
figures
assume
that
if
the
$50,000
single
earner
were
to
file
as
single,
he
or
she would
claim
only one
personal
exemption.
If
the
earner
is
supporting
a
nonwage-earning
partner,
however, the
wage-earner
may
be
able
to claim
that
partner
as
a
dependent.
See discussion
infra
note
117.)
The
marriage
subsidy
under
the
new
1991
rates
for
the
couple
earning
$50,000
and
zero,
unad-
justed
for
inflation,
will
be
slightly
higher than
the
1988
subsidy
shown
by
Rosen.
Based on
his
.assumptions
and
calculation
method,
the
subsidy
for
such
a
couple
will
be
$2,810.
16.
See
Rev.
Rul.
58-66,
1958-1
C.B.
60
(common
law
marriages
are
recognized
for
federal
tax
purposes
provided such
marriages
are
recognized
under
the applicable
state
law). See
also
Joseph
Amaro
v.
Comm'r,
T.C.
Memo
1970-208
(1970)
(" . . .
only
a
couple legally
married
can
avail
themselves
of
the
benefits
of
[the
joint return]").
1991]
HeinOnline -- 1 Law & Sexuality: Rev. Lesbian & Gay Legal Issues 99 1991
LAW
&
SEXUALITY
alternative
means
to
achieve
the
same
result
would
be
for
Congress
to
amend
the
tax
laws
so
that
"tax
marriages"'
7
between
same-sex
couples
would
stand
on
an
equal
footing
with
state-recognized
marriages.
8
So
long
as
Congress
refrains
from
adopting
a
uniform
federal
definition
of
"spouse,"
state
marriage
law
will
continue
to
determine
important
fed-
eral
tax
questions
such
as
who
can
receive
fringe
benefits
tax-free,
make
tax-free
transfers
of
wealth,
and
split
income
on
the
joint
return.
In
effect,
Congress
has
delegated
to
the
states
the
power
to
allocate
certain
federal
tax
burdens.
Whether
this
delegation
makes
sense,
especially
in
light
of
current
trends
in
personal
living
arrangements,
9
raises
an
intricate
ques-
tion
of
tax
policy:
Who
should
be
the
taxable
unit
under
an ideal
income
tax?
It
would
be
impossible
to
discuss
the
federal
taxation
of
same-sex
couples
without
acknowledging
this
underlying
policy
question.
For
pur-
poses
of
this
article,
I
begin
with
the
historical
observation
that
our
early
tax
laws
were
drafted
by
a
Congress
that
did
not explicitly
address
the
question
of
the
appropriate
tax
unit,
but
rather
appeared
to
assume
that
the
taxpaying
unit
would
be
the
individual.
2
"
As
a
starting
point,
individ-
17.
I
use
the term
"tax
marriage"
to
mean
whatever
status
Congress
might
choose
to
define
as
"being
married"
for
tax
purposes.
For
example,
Congress
might
define
"married
for
tax purposes"
as
including
any
two
persons
not
otherwise
married
under
state
law
who
have
signed
an
affidavit
of
intent
to
support
each
other
and
to
have
the tax
laws
apply
to
them
as
though
they
were
married
under
state
law.
The
definition
might
include
additional
requirements
such
as:
(1)
the
existence
of
a
legally
enforceable
contract
for
support;
(2)
no
previous
"tax
marriage"
within
a
certain
time
period;
and
(3)
cohabitation
for
a
minimum
period
of
time.
Obviously,
the
more
detailed
the
requirements,
the
more
difficult
the
provision
would
be
to
enforce.
Additionally,
there
would
need
to
be
special
provisions
for
an
effective
dissolution
of
a
"tax
marriage."
See
generally
Bruce
Wolk,
Federal
Tax
Consequences
of
Wealth
Transfers
Between
Unmarried
Cohabitants,
27
UCLA
L.
REV.
1240,
1265-75
(1980)
(recommending
recognition
of
"domestic
part-
nerships"
for
purposes
of
the
tax
law).
18.
Indeed,
Congress
could
recognize
"tax
marriages"
for
opposite-sex
couples
who
are
not
mar-
ried
under
state
law.
19.
Census
reports
show
that
married-couple
households
as a
percentage
of
total
households
are
on
the decline.
In
1989,
they
accounted
for
56%
of
all
households,
whereas
they
accounted
for
71%
in
1970.
Bureau
of
the
Census,
Current
Population
Reports,
Series
P-20,
No.
441
at
1
(1989).
In
addi-
tion,
the
increase
in
two-career
married
couples
has
changed
the
structure
of
the
married
couple's
household.
For
example,
there
are
an
increasing
number
of
married
couples
who
commute
and
main-
tain
two
households.
20.
Although
husband
and
wife,
living
together,
were
required
to
share
the
personal
exemption
in
the
early
Revenue
Acts,
they
were
otherwise
considered
individual
taxpayers,
liable
for
taxes
on
their
individual
incomes.
See,
e.g.,
§
II
of
An
Act to
Reduce
Tariff
Duties
and
to
Provide
Revenue
for
the
Government,
and
for
Other
Purposes,
38
Stat.
114,
168
(1913),
which
provided
a
83,000
personal
exemption
for
each
taxpayer
and
an
additional
exemption
of
$1,000
if the
taxpayer
was living
with
a
spouse.
However,
if
husband
and
wife
were
both
taxpayers
(i.e.,
if
they
both had
income),
they
could
not
each
claim
a
S3,000
exemption,
but
instead
were
limited
to
a
total
of
$4,000
between
them.
By
1917,
these
exemptions
were
reduced
to
$1,000
for
individuals
and S2,000
for
a
married
couple.
See
War
Revenue
Act,
Pub.
L. No.
65-50,
ch.
63,
§
3,
40
Stat.
300,
301
(1917).
Scholars
have
varied
in
their
descriptions
of
the tax
unit
of
the
early
days.
See,
e.g.,
ERWIN
N.
GRISWOLD
&
MICHAEL
J.
GRAETZ,
FEDERAL
INCOME
TAXATION:
PRINCIPLES
AND
POLICIES
818
(1976)
("Prior
to
1948,
the
tax
unit
was
the
individual
taxpayer
....
);
June
O'Neill,
Family
Issues
in
Taxation
in
TAXING
THE
FAMILY
1 (Rudolph
G.
Penner
ed.
1983)
("Before
1948,
the
U.S.
personal
income
tax
focused
on
the
individual
....
).
But
see
GEORGE
EDWIN
HOLMES,
FEDERAL
INCOME
TAX
50
(1923)
(claiming
that
"[in
so
far
as
possible
the
family
is
treated
as
a
unit
for
purposes
of
the
income
tax.")
[Vol.
1:
97
HeinOnline -- 1 Law & Sexuality: Rev. Lesbian & Gay Legal Issues 100 1991