Deadline Passes For Some But Not All Same Sex Couples for 2007

Originally published on Passive Activities and Other Oxymorons on April 18th, 2011.
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Happy Patriots Day.  Patriots Day is a legal holiday in Massachusetts. "Twas the 18th of April in seventy-five, hardly a man is now alive that remembers that famous day in year."  Great poem.  He left the part about the coin toss that Bill Cosby filled in later:

Suppose way back in history if you had a referee before every war, and the guy called the toss. Let’s go to the Revolutionary War."

[Referee speaking] "British call heads. It’s tails. What do you do, settlers? . . . Settlers say that during the war they will wear any color clothes that they want to, shoot from behind the rocks and trees and everywhere. Says your team has to wear red and walk in a straight line.

If you are ever in the area be sure to visit Minuteman National Park. I couldn't find a statue of the referee when I was there, but it is a big park.  When the due date used to fall on Patriots Day that would extend the deadline for people who filed in Andover.  Apparently nobody is filing in Andover any more.  I haven't really studied the issue, but this is the end of tax season for everybody this year.

It is also the end of the line for many people being able to amend their 2007 returns.  If you have an amended 2007 return that you are planning to drop in the mail today, you might want to consider seeing if there is an IRS office that will accept it within driving range.  "Timely mailed is timely filed" rule does not apply to amended returns.  I have been talking about amended return opportunities for same sex couples since a post in August.  I went into some detail on different scenarios in a post titled Deadline Looms For Same Sex Couples Amended Returns for 2007.  There are two independent events to consider. One is the IRS decision that community property laws should be considered in computing the tax of registered domestic partners.  The other is the decision in Gill v OPM that declared Section 3 of the Defense of Marriage Act unconstitutional.  I won't rehash the whole thing here.

The important point is that the statute of limitations has not expired for people who extended their 2007 returns.  There are also other possible scenarios. If you were audited for 2007 and made a payment in the last two years, the statute might be partially open.  Here is a useful link that discusses the issue.  There are two important points I will emphasize.  If you extended your 2007 return you don't necessarily have until October of 2011 to file an amended return.  If you do not extend the three year clock does not start ticking until April 15 regardless of when you file.  If you extend, however, the clock started when you actually filed, not the extended due date.

The second point is a cautionary tale that I got from Patricia Cain.  I think her blog on same sex tax issues is great.    This caution relates to California Registered Domestic partners.  I'll use Robin and Terry.  In 2006 Robin made $200,000 and Terry made $25,000.  They each extended their returns, which they filed in September.  In October of 2010, they amended their returns to take into account the community property laws.  Robin gets a refund and Terry owes money, but the net is positive (i.e. Robin's refund is greater than Terry's deficiency).  They blew the deadline which in their case was September.  Oh well.  Only it's a lot worse.  Robin's amended return was late, but Terry is claiming an increase in gross income greater than 25%, which is a six year statute.  Ouch.

My observation on this when I first noted CCA 201021050 was that the IRS had indicated that although the ruling would be mandatory for 2010, amending was optional.  So why not just have Robin amend ?  Ms. Cain believes that only amending for the refund return is a strategy that does not pass the smell test.  I have to agree that I wouldn't plan on using it as an air freshener, but I still haven't found that it doesn't work.

I'd let things develop a little further before doing any 2008 amended returns.  The people with the most interesting issues there are the 18,000 same sex California married couples.  They can not amend or amend to conform to community property law like registered domestic partners.  They also have the additional option, less certain but pretty good, of amending to joint returns based on the decision in Gill v OPM.  On  a pure bracket analysis the community property option is probably better, but there is a lot more to joint returns.  If one of them has large capital gains and the other large capital losses, a joint return could be a huge benefit.

I've got a pretty big pile of other developments to work through now that things are quieting down a little at the day job.  If you are following same sex tax issues be sure to keep an eye on the Santa Clara blog, it is very focused.