State and federal tax laws conflict for same-sex couples

— -- Few taxpayers look forward to tax season, but the annual obligation is particularly laborious for tens of thousands of same-sex couples who live in states that recognize gay marriage or civil unions.

Some have to put together four tax returns. Others have to prepare five. Preparation fees can cost thousands of dollars, and refunds may be delayed for months.

The reason: Most states that recognize same-sex marriage or domestic partners allow couples to file a joint state tax return. State tax returns, though, are based on the taxpayer's federal tax return. And because the 1996 Defense of Marriage Act (DOMA) prohibits the federal government from recognizing same-sex marriage, these couples can't file jointly with the IRS.

To get around this conflict, same-sex couples who want to file joint state tax returns must each complete an individual tax return to file with the IRS. They use information from those returns to create a mock joint federal tax return, combining their income, adjustments and credits, and use that return to prepare their joint state tax return.

"It's really a complicated affair because of DOMA," says Melba Abreu, chief financial officer for a non-profit in Boston. Abreu, 56, and her longtime partner, Beatrice Hernandez, 50, were married in 2004. They file a joint tax return with Massachusetts, Abreu says, but when it comes to their federal tax returns, "Our marital status is completely erased."

As more states recognize same-sex partnerships, the number of couples forced to accommodate contradictory state and federal tax laws will increase. In 2011, New York legalized same-sex marriage, so now 11 states and the District of Columbia allow same-sex couples to file joint tax returns.

Monday, Washington Gov. Chris Gregoire signed legislation legalizing gay marriage in that state, which has no state income tax. Lawmakers in Maryland and New Jersey are considering gay marriage bills, and a gay marriage referendum is expected to come up for a vote in Maine in November. Last week, a U.S. appeals court struck down California's ban on gay marriage.

Community property

Nowhere is the task of filing a same-sex tax return more bewildering than in community property states. In response to a court challenge, the IRS said last year that it would recognize community property owned by a same-sex couple, even though it doesn't recognize the relationship that created the community property, says Jean Nelsen, president of the California Society of Enrolled Agents.

Among the nine community property states, three — California, Nevada and Washington — recognize domestic partnerships, legal contracts between partners that are honored by businesses, state and local governments.

Because income earned during the year is considered community property, domestic partners who live in these states must split their income, even though they're filing separate federal tax returns.

Tax preparers say the rules, which first took effect last year, have created chaos for taxpayers and tax preparers. The 2011 tax season "was a nightmare," says Cynthia Leachmoore, an enrolled agent in Soquel, Calif. "You were picking things off one partner's return and placing them on another's and attaching a statement explaining what you did."