Effect of Supreme Court Ruling on DOMA on LIHTC Student Rule

As you probably know by now, on June 26, 2013 the Supreme Court declared that Section Three of The Defense of Marriage Act (DOMA) is unconstitutional. This decision basically holds that persons of the same sex who are legally married under State law may not be deprived of the federal benefits that are provided to married couples of the opposite sex.


This decision will have far-reaching implications for same sex couples in the areas of bankruptcy, federal student aid, federal employee benefits, the Family Medical Leave Act, immigration, Medicaid, Medicare, military spousal benefits, private employment benefits, Social Security, SSI, taxes, Temporary Assistance for Needy Families (TANF) and veteran spousal benefits.


Since same-sex couples currently cannot marry in every state, there is uncertainty about the extent to which same-sex spouses will receive federal marital based protections nationwide. For federal programs that assess marital status based on the laws of a state that does not permit same-sex marriage (including the filing of joint federal tax returns), those state laws will likely pose obstacles for same-sex couples in accessing federal protections.


The Section 42 (Low-Income Housing Tax Credit Program) has five specific exceptions that allow for occupancy of a low-income unit by a household consisting entirely of full time students. One of the exceptions is when all the adults are married and eligible to file a joint federal tax return. DOMA barred married same-sex couples from filing as “married,” whether jointly or separately. Now that DOMA has been ruled unconstitutional, it is possible that the IRS will instruct married same-sex couples to file their income tax returns as “married” – whether jointly or separately – rather than as an “individual” or “head of household,” provided the IRS recognizes the marriage.


I would expect guidance from the IRS prior to the publication of instructions for the 2013 tax returns on this issue. Guidance is required, since under current IRS practice, a person can file his or her tax return as “married filing jointly” or “married filing separately” if the individual is considered married in his or her state of domicile (essentially, the permanent residence/primary home). This would seem to suggest that only people in states that license or recognize marriages of same-sex couples and in D.C. can expect to be treated as married by the IRS. However, there is no statute or regulation requiring this approach, and the IRS does not always follow this practice. For example, the IRS recognizes “common law” marriages for federal tax purposes no matter where a couple lives as long as their marriage was valid where entered.


If you operate a LIHTC property in one of the states that recognizes same sex marriage, households consisting entirely of full-time students, where all residents are eligible to file a joint tax return (including same-sex couples), will qualify for residency. These states are Massachusetts, Connecticut, Iowa, California, Vermont, New Hampshire, District of Columbia, New York, Rhode Island, Delaware, Minnesota, Maine, Maryland, and Washington. As to whether LIHTC properties in all other states will be able to consider same-sex couples as eligible to file a joint tax return, we do not know. Owners and managers should not approve such couples under this student exception until guidance is provided by the IRS.