A valid marriage is required to file a Joint Return. What is a valid marriage?
By admin of MillarLaw A Professional Corporation On Sunday, October 15, 2017
Assuming that you have a valid marriage for federal income tax purposes, as defined in “Section 301.7701-18(b)(1) of the Procedure and Administration Regulations that a marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile” .
“Domicile is the place where a person has his or her true, fixed, permanent home and principal establishment and to which, whenever he is absent, he has the intention of returning”. Internal Revenue Manual (I.R.M. 188.8.131.52)
In Technical Advice Memorandum (TAM-104049) dated May 1, 2017. The IRS found that in a state that recognized a “common law marriage” the parties were validly married for federal income tax purposes. The issue is what about in states that do not recognize “common law” marriage can parties who otherwise hold themselves out to be married file a joint return despite not being legally married? The answer appears to be no.
The facts in TAM-104049 were that the parties entered into a valid common law marriage under the laws of the particular state in which they entered into the relationship. (There are 41 states that recognize “common law” marriage.) In this case it appears that one of the taxpayers died and the survivor appears to have treated the decedents estate as subject to the “unlimited marital exclusion” which allows for the estate and gift tax free transfer of property between spouses. The claim of exempt transfer of assets to the surviving spouse appears to have been challenged by the IRS auditor who asked for technical advice.
The TAM is not, however, limited to estate and gift taxation, for the language of TAM states that the marriage is ” recognized for federal tax purposes”, which includes income, excise, estate and gift. The corollary is that if the marriage is not recognized by the state in which “it entered into “, then the marriage will not be recognized for federal tax purposes.
If the parties file separate income tax returns, they are only responsible for their own taxes. But what happens if the parties made an erroneous Joint Return election based upon the assumption that their marriage was valid under state law. The (I.R.M. 184.108.40.206.4) provides:
spouses filing a joint return, as a matter of federal law, are jointly and severally liable for the tax on all of the income of both spouses reportable on the joint tax return, whether it is community property or separate property.
The assumption is that a joint return is election is made on the existence of a valid marriage, and that the taxpayer’s know or should know the validity of their marital status at the time the first joint return is filed. But the proof of a valid marriage may not be easy if the parties were married in another country that does not have the equivalent of a marriage license, but instead relies on informal records or no records at all. In some cases there may only be registries maintained by local institutions like churches, synagogues or mosques which may not be available or not accepted under state laws.
The issue of whether a valid marriage exists arises in the context of a termination of the relationship, or in estate administration. In those cases the income and estate and gift tax consequences can be complex, time consuming and difficult to resolve. The potential for audit adjustments based upon incorrect filing status, penalties, such as negligence or fraud (if conduct was intentional) and event criminal charges for false statement crimes can make a termination of a relationship or death of a loved one even more challenging. IT may be best to correct the erroneous joint return filing now rather than wait for the government to initiate a question about the marital status.