Following up on yesterday's post, Lawsuit Challenges Application of DOMA to Tax Code:  Tax Profs Pat Cain (Santa Clara), Tony Infanti (Pittsburgh), and Ted Seto (Loyola-L.A.) comment on the case below the fold:

Feminist Law Professors:  Challenging the Constitutionality of DOMA, by Toni Infanti (Pitt):

[T]he complaint only hints at the many and complicated ways in which the Code affects same-sex couples. The complaint talks about one (and only one) of the ways in which the Code directly affects same-sex couples by refusing recognition to their relationships; that is, it bars access to married filing jointly status. The complaint does not explore the many other areas of the Code where tax treatment turns on marital status (e.g., section 1041 transfers between spouses, the section 2040 estate tax rules for property held as joint tenants with right of survivorship, the gift and estate tax marital deductions, the exemption both from attribution rules that prevent abuse such as section 267 and from attribution rules that are meant to benefit taxpayers such as in section 121, and exclusions from gross income for certain fringe benefits under section 132). Nor does the complaint address the many gray areas in the tax laws that exist by dint of the fact that the federal Defense of Marriage Act tells married same-sex couples only that their marriage will not be recognized for federal tax purposes and gives these couples no instructions at all on how they should actually be treated for federal tax purposes. Thus, although the complaint shines a spotlight on an important area and begins to tell a more complicated story about the relationship between same-sex marriage and the federal tax laws, the complaint only shows the world the tip of the iceberg. Hopefully, this case will provide a vehicle for telling the broader story as well.

Tax Notes Today:  Suit Challenges IRS's Definition of Marriage, by Amy S. Elliott (TNT 2009-4699 (Mar. 4, 2009))::

Anthony C. Infanti, a professor at the University of Pittsburgh School of Law, has written extensively on DOMA's application in tax law. He told Tax Analysts that the people included in the complaint "help to paint a more complicated — and realistic — picture of how same-sex couples live." Infanti said many observers question why same-sex married couples would want to fight for recognition by the tax code, assuming a stereotypical view that same-sex couples are two-earner households and would therefore be subject to the marriage penalty if they were allowed to file jointly. …

The couple claims they were injured because the rate schedule was not applied to their tax return submitted as married filing jointly. "If the court were to rule in their favor, all they would be doing is holding the rate schedule unconstitutional," said Patricia Cain, a professor at Santa Clara University School of Law. Cain's specialties include taxation and gay and lesbian issues, and she was consulted by the attorneys in this case.

The bigger question is whether DOMA is unconstitutional as applied to the entire code. "Sometimes there are benefits to being married," Cain said. "Sometimes there are detriments. The main intent of taxing married couples differently is not to benefit them, it's to measure their income accurately. The best solution is for Congress to take a look at this and to repeal DOMA."

If this case is successful and legislative efforts are not, Cain says, "it would be hard to imagine a case in which the government could justify denying marital status under any other code provision."

But in a draft paper Cain wrote, her stance was more tentative. "My sense is that federal courts would not be willing to rule more broadly in a tax case than on the specific issue before it," she wrote.

The question — how to tax people when they commingle their assets the way married couples do — is one that tax practitioners have been wrestling with for some time. Theodore P. Seto, a tax law professor at Loyola Law School Los Angeles, offered the following example: "Let's suppose one same-sex spouse pays for dinner at a restaurant. Do we have to account for that as a gift for gift tax purposes? Or is it compensation for the fact that his spouse did the dishes the other night?"

In his article, The Assumption of Selfishness in the Internal Revenue Code: Reframing the Unintended Tax Advantages of Gay Marriage, [65 Wash. & Lee. L. Rev. 1529 (2008),] Seto points out that same-sex couples, because they cannot be married for tax code purposes, are therefore not subject to the extensive related-party rules in the code because legal marriage is used as a proxy for that regime. Seto identified 250 separate code provisions that have special rules for related parties — none of which apply to same-sex married partners.

This is one example of the ways in which the federal government, by not treating same-sex married couples as married for tax code purposes, may actually be losing money. In 2004 the Congressional Budget Office released a report, The Potential Budgetary Impact of Recognizing Same-Sex Marriages, finding that recognizing such marriages would increase federal revenue.