Newsletters

The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

Qualified Personal Vehicle Loan Interest

For tax years beginning in 2025 through 2028, a noncorporate taxpayer may claim a deduction of up to $10,000 for qualified personal vehicle loan interest (QPVLI) paid or accrued during the tax year on a specified passenger vehicle loan (SPVL) incurred by the taxpayer for the purchase of an applicable personal vehicle (APV) for personal use. Generally, interest includes an amount paid, received, or accrued as compensation for the use or forbearance of money under the debt instrument.

The final regulations clarify that QPVLI also includes prepaid interest in the form of points and deferred or capitalized interest. In addition, it may include origination-related or financing-related charges, prepayment penalties, late-payment charges, default-related charges, and similar fees, if characterized as an interest expense for federal income tax purposes.

Secured by First Lien

Interest is QPVLI only if it is paid or accrued on debt for the purchase of an APV for personal use that is secured by a first lien. The final regulations clarify that an SPVL is secured by a first lien with the first voluntary security interest recorded against the vehicle. Any involuntary liens are disregarded even if given temporary higher priority at a later date.

A vehicle also may be considered secured by a first lien even if the lien has not yet been perfected or recorded due to short-term delays arising under State or local law. It may also be considered secured by a first lien where the lien is removed in connection with the taxpayer no longer owning the vehicle, but the taxpayer continues to be liable for the loan (repossession or insurance payout).

Purchase of Applicable Passenger Vehicle

An SPVL is qualified only to the extent the debt is incurred for the purchase of a new vehicle and any other items or amounts customarily financed in the same purchase transaction (for example, vehicle service plans, extended warranties, sales taxes, and vehicle-related fees). Any portion of a loan for items or amounts not customarily financed in the purchase are not qualified.

The taxpayer must allocate the debt on a pro rata basis. Whether items are customarily financed and directly related to the purchase of the vehicle is determined on an industry-wide basis and not on the particular financing terms. The final rules, however, expand the list of examples of items customarily financed in an APV purchase. The final regulations also maintain that debt incurred for negative equity in a prior purchased vehicle is not incurred for the purchase of an APV.

The requirement that an APV must be a new vehicle under the loan documentation refers to the lender’s classification of the vehicle for purposes of its financing programs. The original use of the vehicle must commence with the taxpayer. However, original use does not commence with a dealer if the vehicle is held primarily for sale to customers in the ordinary course of its trade or business. Original does not commence with a lessee if the lessee purchases the vehicle during or at the end of the lease term.

Information Reporting

Any lender or other person who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on an SPVL, must report the receipt of interest on Form 1098-VLI to the IRS and the payee. The final regulations affirm that lenders are required to include only interest received on an SPVL for the purchase of an APV, the first use of which begins with the payee. This is required by statute and may require the lender to collect information it currently does not collect. The lender must file Form 1098-VLI for each SPVL.

T.D. 10054

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

Racial Nondiscrimination

The proposed regulations would treat all race-based consideration in private education as contrary to a fundamental public policy, regardless of its purpose, including remedial or diversity-related objectives. This restriction does not inclulde policies or actions designed to eliminate prejudice or other forms of discrimination. The rules would cover private primary and secondary schools, colleges, professional or trade schools, and universities. The rules specifically do not include governmental units, any agency or instrumentality of a governmental unit, or any organization owned or operated by such an agency or instrumentality.

Application to Private Schools

To qualify for tax exemption, a private school could not consider race, color, or national or ethnic origin in:

• (1) Educational or admissions policies
• (2) Scholarship or loan programs
• (3) Athletic or other school-supported programs

The proposal would not prevent religious schools from maintaining religious missions or selecting students based solely on religious affiliation. If finalized, Rev. Proc. 75-50 would also be modified to remove provisions permitting certain race-based preferences for minority groups.

The proposed regulations would add §1.501(c)(3)-2 and apply to taxable years beginning after May 31, 2027.

Proposed Regulations, NPRM REG-119986-25

IR 2026-103

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

The partnership, which was subject to the centralized partnership audit (CPA) regime, challenged an FPA disallowing a charitable contribution deduction. The partnership argued that the FPA was issued outside the applicable limitations period because the 330-day period following the notice of proposed partnership adjustment had expired. However, the parties had previously executed an agreement extending the limitations period for partnership adjustments under Code Sec. 6235(b).

Further, it was concluded that the periods specified in Code Sec. 6235(a) were not sequential deadlines. The statutory phrase “later of” required use of the latest applicable period, and an agreed extension under Code Sec. 6235(b) extended the limitations period for making adjustments, including issuance of the FPA. Because the FPA was mailed before expiration of the agreed extended period, the FPA was timely.

Katanga Properties, LLC, 167 TC No. 10, Dec. 62,899

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The law (H.R. 5366) allows victims of federally declared disasters to deduct qualified losses above $500 per disaster without itemizing and removes the 10 percent adjusted gross income threshold for those losses. A fact sheet on the bill can be found here.

Under the law, this treatment of personal casualty loss is available until Jan. 1, 2027.

It also excludes wildfire relief payments from taxable income regardless of when they are received, so long as the wildfire disaster declaration occurs after Dec. 31, 2014, and before Jan. 1, 2027.

President Trump signed the bill into law on Sept. 11, 2026.

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

For research expenditures, the procedure modifies accounting method changes under Code Secs. 174 and 174A. Code Sec. 174 continues to require capitalization and 15-year amortization for foreign research expenditures. Code Sec. 174A generally allows a current deduction for domestic research expenditures paid or incurred in tax years beginning after December 31, 2024.

The procedure also revises rules governing adjustments associated with accounting method changes. It coordinates certain Code Sec. 481 adjustments with the OBBBA transition method for recovering unamortized domestic research expenditures. It also extends through tax years beginning before 2028 waivers of certain eligibility restrictions for specified automatic changes.

Further, the IRS provides automatic accounting method changes for residential construction contracts affected by the OBBBA amendments to Code Sec. 460. Taxpayers may change from the percentage-of-completion method to an exempt contract method for qualifying contracts entered into in tax years beginning after July 4, 2025. Certain taxpayers may also change their treatment of costs under Code Sec. 263A.

The modified procedures generally apply to Form 3115, Application for Change in Accounting Method, filed after September 4, 2026. Special transition rules apply to certain previously filed Forms 3115.

Rev. Proc. 2026-32

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2023 Income Tax Brackets

For 2023, the highest income tax bracket of 37 percent applies when taxable income hits:

• $693,750 for married individuals filing jointly and surviving spouses,
• $578,125 for single individuals,
• $578,100 for heads of households,
• $346,875 for married individuals filing separately, and
• $14,450 for estates and trusts.

2023 Standard Deduction

The standard deduction for 2023 is:

• $27,700 for married individuals filing jointly and surviving spouses,
• $20,800 for heads of households, and
• $13,850 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,250 or
• the sum of $400, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,500 for married taxpayers and surviving spouses, or
• $1,850 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2023

The AMT exemption for 2023 is:

• $126,500 for married individuals filing jointly and surviving spouses,
• $81,300 for single individuals and heads of households,
• $63,250 for married individuals filing separately, and
• $28,400 for estates and trusts.

The exemption amounts phase out in 2023 when AMT exceeds:

• $1,156,300 for married individuals filing jointly and surviving spouses,
• $578,150 for single individuals, heads of households, and married individuals filing separately, and
• $94,600 for estates and trusts.

Expensing Code Sec. 179 Property in 2023

For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.

Estate and Gift Tax Adjustments for 2023

The following inflation adjustments apply to federal estate and gift taxes in 2023:

• the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $12,920,000; and
• the maximum reduction for real property under the special valuation method is $1,310,000.

2023 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2023 is $120,000.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2023 Adjustments

These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

Identity theft

Combatting identity theft is on ongoing process as criminals continue to create new ways of stealing personal information and using it for their gain. Tax-related identity theft typically peaks early in the filing season. Criminals file bogus returns early so taxpayers remain unaware you have been victimized until they try to file a return and learn one already has been filed. Between 2011 and 2015, the IRS identified 19 million suspicious returns and prevented the issuance of some $60 billion in fraudulent refunds. During the 2015 filing season, the IRS detected and stopped more than 3.8 million suspicious returns.

However, criminals continue to probe for weaknesses. In May, the IRS discovered that criminals had breached its Get Transcript app. Return information of as many as 300,000 taxpayers may have been compromised, the IRS reported.

New protections

In March, the IRS began working with the return preparation community and the tax software industry to develop a coordinated response to tax-related identity theft. The stakeholders, the IRS reported, have focused on a number of areas including improved validation of the authenticity of taxpayers and information on returns, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.

One outgrowth of the process is the creation of new data elements that can be shared at the time of filing with the IRS to help authenticate a taxpayer's identity. The IRS explained that there are more than 20 new data components. They will be submitted with electronic return transmissions during the 2016 filing season. Some of the data elements are

• Reviewing the transmission of the tax return, including the improper and/or repetitive use of internet addresses from which the return is originating;
• Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.
• Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

"We are taking new steps upfront to protect taxpayers at the time they file and beyond," IRS Commissioner John Koskinen said at a news conference in Washington, D.C. "Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season."

Financial products

Previously, the IRS announced that it would limit the number of direct deposit refunds to a single financial account or pre-paid debit card to three. Fourth and subsequent valid refunds will convert to paper checks and be mailed to the taxpayer. The IRS emphasized that it will continue to bolster its efforts to curb tax-time financial product fraud.

If you have any questions about tax-related identity theft, please contact our office.

IR-2015-117, FS-2015-23

Despite the 16-day government shutdown in October, a number of important developments took place impacting the Patient Protection and Affordable Care Act, especially for individuals and businesses. The Small Business Health Option Program (SHOP) was temporarily delayed, Congress took a closer look at income verification for the Code Sec. 36B premium assistance tax credit, and held a hearing on the Affordable Care Act's employer mandate. Individuals trying to enroll in coverage through HealthCare.gov also experienced some technical problems in October.

Despite the 16-day government shutdown in October, a number of important developments took place impacting the Patient Protection and Affordable Care Act, especially for individuals and businesses. The Small Business Health Option Program (SHOP) was temporarily delayed, Congress took a closer look at income verification for the Code Sec. 36B premium assistance tax credit, and held a hearing on the Affordable Care Act's employer mandate. Individuals trying to enroll in coverage through HealthCare.gov also experienced some technical problems in October.

SHOP

The Affordable Care Act created two vehicles to deliver health insurance: Marketplaces for individuals and the SHOP for small businesses. Marketplaces launched as scheduled on October 1 in every state and the District of Columbia. Qualified individuals can enroll in a Marketplace to obtain health insurance. Coverage through a Marketplace will begin January 1, 2014.

The October 1 start of SHOP, however, was delayed. Small employers may start the application process on October 1, 2013 but all functions of SHOP will not be available until November, the U.S. Department of Health and Human Services (HHS) reported. If employers and employees enroll by December 15, 2013, coverage will begin January 1, 2014, HHS explained.

SHOP is closely related to the Code Sec. 45R small employer health insurance tax credit. This tax credit is designed to help small employers offset the cost of providing health insurance to their employees. After 2013, small employers must participate in SHOP to take advantage of the Code Sec. 45R tax credit. For tax years beginning during or after 2014, the maximum Code Sec. 45R credit for an eligible small employer (other than a tax-exempt employer) is 50 percent of the employer's premium payments made on behalf of its employees under a qualifying arrangement for QHPs offered through a SHOP Marketplace. The maximum credit for tax-exempt employers for those years is 35 percent. Maximum and minimum credits are based upon the level of employee wages. If you have any questions about SHOP and the Code Sec. 45R credit, please contact our office.

Code Sec. 36B tax credit

Effective January 1, 2014, qualified individuals may be eligible for the Code Sec. 36B premium assistance tax credit to help pay for health coverage through a Marketplace. The credit is linked to household income in relation to the federal poverty line (FPL). Generally, taxpayers whose household income for the year is between 100 percent and 400 percent of the federal poverty line for their family size may be eligible for the credit.

When taxpayers apply for coverage in a Marketplace, the Marketplace will estimate the amount of the Code Sec. 36B credit that the taxpayer may be able to claim for the tax year. Based upon the estimate made by the Marketplace, the individual can decide if he or she wants to have all, some, or none of the estimated credit paid in advance directly to the insurance company to be applied to monthly premiums. Taxpayers who do not opt for advance payment may claim the credit when they file their federal income tax return for the year.

The October 16 agreement to reopen the federal government directed HHS to certify to Congress that Marketplaces verify eligibility for the Code Sec. 36B credit. HHS must submit a report to Congress by January 1, 2014 on the procedures for verifying eligibility for the credit and follow-up with a report by July 1, 2014 on the effectiveness of its income verification procedures.

Employer mandate

The Affordable Care Act generally requires an applicable large employer to make an assessable payment (a penalty) if the employer fails to offer minimum essential health coverage and a number of other requirements are not met. The employer mandate was scheduled to take effect January 1, 2014. However, the Obama administration delayed it for an additional year, to 2015.

In October, the House Small Business Committee heard testimony on the definition of full-time employee status for purposes of the employer mandate. An applicable large employer for purposes of the employer mandate is an employer that employs at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50. A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week.

Employers testifying before the GOP-chaired committee urged an increase in the 30-hour threshold. "Many small businesses simply cannot afford to provide coverage to employees who average 30 hours per week," the owner of a supermarket told the committee. "Business owners will have to make tough choices and many part-time employees will face reduced hours," he added. "Many franchise businesses are being turned upside down by the new costs, complexities and requirements of the law," another business owner told the committee.

Legislation (HR 2575) has been introduced in the House to repeal the 30-hour threshold for classification as a full-time equivalent employee for purposes of the employer mandate and to replace it with 40 hours. The bill has been referred to the House Ways and Means Committee.

HealthCare.gov

As has been widely reported, the individuals seeking to enroll in Marketplace coverage through HealthCare.gov experienced some online problems in October. The U.S. Department of Health and Human Services (HHS) has undertaken a comprehensive review of HealthCare.gov. In the meantime, HHS reminded individuals that in-person assistance centers are open as are customer call centers.

Enrollment

The Affordable Care Act generally requires individuals to carry health insurance after 2013 or make a shared responsibility payment (also known as a penalty). For 2014, the penalty is $95 or the flat fee of one percent of taxable income, $325 in 2015 or the flat fee of two percent of taxable income, $695 in 2016 or 2.5 percent of taxable income (the $695 amount is indexed for inflation after 2016).

Open enrollment in the Affordable Care Act's Marketplaces began October 1, 2013 and runs through March 31, 2014. The enrollment period overlaps with the January 1, 2014 requirement to carry health insurance or make a shared responsibility payment. On social media, the Obama administration clarified that individuals who enroll in coverage through a Marketplace at anytime during the enrollment period will not be responsible for a penalty.

If you have any questions about these developments or the Affordable Care Act in general, please contact our office.

The IRS has issued much-anticipated final "repair" regulations that provide guidance on the treatment of costs to acquire, produce or improve tangible property. These regulations take effect January 1, 2014. They affect virtually any business with tangible assets. The IRS has estimated that about 4 million businesses must comply.

The IRS has issued much-anticipated final "repair" regulations that provide guidance on the treatment of costs to acquire, produce or improve tangible property. These regulations take effect January 1, 2014. They affect virtually any business with tangible assets. The IRS has estimated that about 4 million businesses must comply.

At a length of over 200 pages, the regulations remain complex. Taxpayers will need to devote significant time and effort to study these regulations and to address their impact on their tax accounting. Taxpayers must decide whether they can deduct costs as repairs and maintenance or must capitalize the costs and recover their costs over a period of years. Every business, especially those with significant fixed assets, must develop an understanding of the regulations and their requirements.

Effective dates, decisions and opportunities

The final regulations retain the basic structure of the temporary and proposed regulations issued in December 2011 (the 2011 regulations). The IRS is not expected to delay these effective dates, since taxpayers were informed of the impending changes in many of the rules almost two years ago. Moreover, taxpayers will have the decision of whether to apply the regulations (either the temporary or the final) to the 2012 or 2013 tax years.

The IRS must provide additional guidance for taxpayers to change their methods of accounting to elect to apply either set of regulations retroactively and to comply with the 2014 effective date. Some accounting method changes will require taxpayers to make adjustments under Code Sec. 481(a), in effect, applying the regulations to past years and calculating the impact on income.

The final regulations make significant changes that can benefit most taxpayers if applied correctly. The changes include new and revised safe harbors, as well as new relief provisions for small business. The regulations will provide simplification and reduce controversy by allowing taxpayers to follow their financial accounting ("book") policies in some areas.

The IRS did not finalize every portion of the 2011 regulations. To address some problems with the temporary regulations on the disposition of depreciable property, the IRS issued new proposed regulations that ease the requirements for taxpayers to deduct the cost of building components that they replace.

Significant provisions in the final regulations include the following:

Materials and supplies - The threshold for deducting materials and supplies was increased from $100 to $200 and generally applies to items expected to be consumed in 12 months or less, or that have an economically useful life of 12 months or less.

De minimis safe harbor - The final regulations eliminate a controversial ceiling on the use of this safe harbor. Taxpayers with applicable financial statements can apply the safe harbor to an item that is $5,000 or less. The regulations extend the safe harbor to taxpayers without a financial statement, but only for property that costs $500 or less. Taxpayers must have written book policies in place at the beginning of the year to apply the safe harbor.

Routine maintenance and improvements - The final regulations retain controversial unit of property rules that apply the rules for real property to eight separate building systems. However, the rules do extend the routine maintenance safe harbor to real property and provide a new safe harbor for small taxpayers. The safe harbor for real property limits the period for recurring maintenance to 10 years, which many practitioners believe is too short.

Capitalization election - The final regulations allow taxpayers to capitalize repair and maintenance costs if these costs are capitalized for financial accounting purposes. This provides significant simplification over the temporary regulations, although the tax impact is contrary to what taxpayers normally want.

If you have any questions regarding the compliance obligations that your business now must face, and the opportunities that many of these new rules present, please do not hesitate to call this office.

The U.S. Supreme Court's decision in June to strike down Section 3 of the Defense of Marriage Act (DOMA) (E.S. Windsor, 2013-2 ustc ¶50,400) generated many questions about federal taxes and same-sex couples. The IRS has responded with a general rule recognizing same-sex marriages nationwide. The agency also promised that more guidance will be released before the start of the 2014 filing season.

The U.S. Supreme Court's decision in June to strike down Section 3 of the Defense of Marriage Act (DOMA) (E.S. Windsor, 2013-2 ustc ¶50,400) generated many questions about federal taxes and same-sex couples. The IRS has responded with a general rule recognizing same-sex marriages nationwide. The agency also promised that more guidance will be released before the start of the 2014 filing season.

Place of celebration approach

Section 3 of DOMA prevented the IRS (and all federal agencies) from recognizing same-sex married couples as married. After the Supreme Court struck down Section 3 of DOMA, the IRS had an important decision to make. The IRS could recognize all same-sex marriages regardless of where the couple resided. Alternatively, the IRS could only recognize the marriages of couples who reside in states that recognize same-sex marriage.

The IRS chose the first approach, which is known as "place of celebration" approach. All legally married same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes, regardless of whether a couple resides in a jurisdiction that recognizes same-sex marriage or in a jurisdiction that does not recognize same-sex marriage. This means that a couple who marry in a state (or other jurisdiction) that recognizes same-sex marriage and subsequently move to a state that does not recognize same-sex marriage will continue to be treated as married for all federal tax purposes.

The IRS had an important historical precedent that lead to its choosing place of celebration over place of residence. The IRS has taken a place of celebration approach to common law marriages for over 50 years.

Tax returns

For 2013 returns filed in 2014, legally married same-sex couples must file as married filing jointly or married filing separately. The rules for 2012 and prior years are not as simple.

The IRS imposed a deadline of September 16, 2013 for married same-sex couples, who had yet to file an original return for 2012, to file as single or as married. For 2011 and earlier, same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax return filing status. They may amend their prior-year returns using either married filing separately or jointly filing status, provided the period of limitations for amending the return has not expired. If you have any questions about filing an amended return, please contact our office.

Employee benefits

Because of DOMA, taxpayers may have paid taxes on the fair market value of employer-provided health care coverage for their same-sex spouse. The IRS will allow the employee to file an amended return for open tax years reflecting his or her status as a married individual to recover federal income tax paid on the value of health coverage of the employee's spouse. The IRS also instructed certain sponsors of some employee benefit plans to treat same-sex spouses as spouses.

Employment taxes

The IRS has provided two optional alternative special administrative procedures for employers to use to correct overpayments of employment taxes. Under the first alternative, employers may use the fourth quarter 2013 Form 941, Employer's Quarterly Federal Tax Return, to correct these overpayments of employment taxes for the first three quarters of 2013. Under the second alternative, employers may file one Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct these overpayments of FICA taxes for all quarters of 2013. Please contact our office for more details about these optional procedures.

Domestic partners

There is one very important distinction that the IRS has made in its guidance for same-sex couples. The IRS is not recognizing registered domestic partners, individuals in a civil union, or similar relationships as married. Registered domestic partners may not file as married filing jointly or married filing separately because the individuals are not married or spouses for federal tax purposes

Looking ahead

The IRS will likely begin accepting 2013 returns for processing in mid- to late January 2014. Some same-sex couples may find their filing more complicated despite the demise of DOMA. States that do not recognize same-sex marriage will presumably not allow these couples to file their state returns (if required) as married. The IRS is also expected to issue more guidance on particular areas of the tax law, such as estate and gift taxes, retirement plans and more. Our office will keep you posted of developments.

Please contact our office if you have any questions about the IRS's guidance for same-sex couples.