It appears that the States have effectively shut down recent attempts by gays and lesbians to achieve full marital equality. However, this does not appear to be the end of this issue and it leaves me wondering if gay and lesbian rights advocates might try their case in the tax policy arena. This raises questions as to what this type of case would involve and what the implications would be if the case were successful.

Most likely the case would involve gay or lesbian partners filing a single tax return as married filing jointly or partners filing separate tax returns with the married filing separate status. Undoubtedly the IRS would reject the returns as filed, noting that gay and lesbian partners do not qualify as married under the state law. The gay or lesbian partners could then challenge the IRS position, likely by making an equal protection argument. The IRS would counter by arguing that Congresses has the Constitutional power to lay and collect taxes and that Congress has deferred to the state's definition of marriage for tax purposes. So the ultimate question would be whether in this case the Congressional power to lay and collect taxes would trump an equal protection argument. Given Congressional deferral to state law to define marriage, it seems like an equal protection argument would triumph. So the question is then whether in this situation gay and lesbian partners could make a successful equal protection argument.

Essentially the gay or lesbian taxpayer would be arguing that Internal Revenue Code Section 6013 and other Code sections and administrative regulations and rulings and state laws treat gay and lesbian partners different than non-homosexual spouses even though the two groups are similarly situated. Moreover, the gay or lesbian partner would be arguing that state law definitions of marriage should not shape our federal tax law. There is some precedent for this type of argument in our tax law. For example, it has long been held that state law determines the nature of property rights, but federal law determines how that property is taxed. For a more specific example, state law grants individuals property rights for trusts that are created under state law, yet federal tax law (IRC Sections 671 through 677) determines which taxpayer actually owns the property for federal income, gift, and estate tax purposes. So state law may say that a specific person owns the property in the trust, but federal tax law may say that someone else may in fact own it for purposes of federal tax law. Applying this reasoning, the gay and lesbian partner would in essence be arguing that state law definitions of marriage can define marriage, but federal law should determine how married and unmarried taxpayers are taxed under our federal income, gift and estate tax laws.

Who knows if the Court would buy into this argument. However, it should be noted that the Court has struck down legislation where the Court found that the legislation was motivated by "animus" or "hostility" towards politically unpopular groups. For example, in Romer v. Evans, the Court struck down a Colorado constitutional amendment that would have prevented the state or any of its cities from giving certain protections to gays or lesbians. Essentially the Court held that the amendment had no legitimate government interest and the government interest being served and the means chosen by the government were not rationally related to the interest that the government asserted. This is the least restrictive analysis that the Court employs, so even if the Court applied this analysis to the case there would be a good chance that the gay or lesbian partner's argument would be successful.

If this argument were successful then Congress would be in the position of having to simply allow gay and lesbian partners to enjoy married filing jointly status or amend the Internal Revenue Code. The big picture implication would be that gay and lesbian couples could combine their items of gain and loss and they would qualify for the more favorable tax rates and other tax benefits. Similarly such a change would have sweeping implications for all of the tax provisions that favor married couples, including health, retirement, insurance, and other provisions.

The administrative problem for the IRS would be the increased number of persons who the IRS would essentially have to treat as married under common law. Common law marriage, which is allowed in a number of states, affords taxpayers who can qualify as such with a number of tax planning opportunities (and a number of tax pitfalls). For example, a taxpayer who survives the demise of an unmarried partner that lives in one of these states is often able minimize or avoid the federal estate tax by arguing that he or she was in fact common law married (and therefore, qualifies for the unlimited marital deduction). Similarly, the IRS would have to address innocent spouse claims made by unmarried gay and lesbian partners and the IRS would have to deal with cases where unmarried gay and lesbian partners dispute who is entitled to the head of household exemption and other deductions and credits.

Such a challenge is not improbable and if successful it would force a number of tax code changes. This type of federal recognition of gay and lesbian rights would invariably further gay and lesbian rights and eventually it could even lead to full gay and lesbian marital equality.