TAX LAW
Unfettering Zealous Advocacy on Behalf of Lesbian and Gay Taxpayers

By Anthony C. Infanti

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tax lawyer owes a special duty to the tax system that may conflict with and constrain the duty owed to the client. This article deconstructs the conventional conceptualization of the duty to the tax system in an effort to open the necessary ethical space for crafting an alternative view of that duty—one that better suits the representation of lesbian and gay clients.

The duty to the tax system: The heteronormative view.

A justification for imposing a duty to the tax system on tax lawyers relies on the realities of the tax compliance and enforcement process. The duty to the tax system serves to level the playing field between two unequally matched adversaries. It requires the tax lawyer, who is representing the relatively more powerful player in this matchup (the taxpayer), to take account of the interests of the less powerful player (the government) when exercising discretion in settling on the appropriate tax characterization of a transaction. Given the realities of the tax compliance and enforcement process, it might therefore be more accurate to say that, when the tax lawyer enters gray areas of tax characterization, he or she is asked to privilege the duty to the tax system over the duty of zealous advocacy in an attempt to right the relationship between the taxpayer and the Service.

Many commentators share the Treasury Department’s view of this duty as requiring the tax lawyer to “balance the immediate demands of her clients against the public’s interest in a sound tax system that operates according to policy judgments reached through a democratic process.” And, in an important step toward righting the relationship between the taxpayer and the government, it seems that the tax lawyer should undertake the task of striking an appropriate balance between excessive conservatism and reckless optimism without factoring in the actual likelihood that the Service will detect and audit the client.

Where the application of the tax laws is clear, striking the balance between excessive conservatism and reckless optimism is easy. In that case, the tax lawyer can discharge both the duty to the tax system and the duty to the client simply by advising the taxpayer to pay the “correct” amount of tax. More commonly, however, the “correct” amount of tax is unclear, and striking the balance becomes difficult because the tax lawyer’s duties to the tax system and to the client conflict with each other.

The duty to the tax system: A lesbian and gay perspective.

For lesbians and gay men, each of the key features of the conventional view of the relationship between taxpayers and the Service that underpins the duty to the tax system is turned squarely on its head. The relationship between the Service and lesbian and gay taxpayers does not begin from a baseline of cooperation but from a baseline of antagonism. Far from working cooperatively toward the end of determining the correct tax treatment of items on the taxpayer’s return, the government has generally refused to provide meaningful guidance on the tax treatment of same-sex couples. And, in the rare instance when it has spoken, the Service’s guidance has not necessarily aimed at a fair and honest application of the tax laws. Indeed, recent guidance appears to be driven more by ideology than by concern with the correct application of the tax laws to same-sex couples.

Congress engaged in invidious discrimination against lesbians and gay men when it enacted the Defense of Marriage Act (DOMA). The federal government treats same-sex and different-sex relationships differently for tax purposes, even when state governments place these relationships on the same legal plane. In states where same-sex relationships are on the same legal plane as different- sex relationships, same-sex couples who marry or enter into a civil union are treated the same as married different-sex couples for state tax purposes, but they are treated as “single” strangers for federal tax purposes. Through DOMA, Congress has stigmatized lesbians and gay men by branding their relationships inferior to those of straight couples.

In some situations, the tax effects of DOMA are clear. It prohibits same-sex couples in states that recognize same-sex marriage or civil unions from filing joint federal income tax returns. It is equally clear that same-sex couples cannot claim the benefit of nonrecognition treatment for transfers between spouses under the income tax or the benefit of the gift and estate tax marital deductions, which, when taken together, allow spouses to transfer property within the couple tax-free.

In many important areas, however, the tax treatment of same-sex couples has been left quite murky. Two factors contribute greatly to this murkiness. First, DOMA only tells same-sex couples that they may not look to the rules applicable to married couples for guidance; it says absolutely nothing about how the Code should be applied to them. Second, after the enactment of DOMA, Congress and the Service have failed to provide meaningful guidance on how the Code should be applied to same-sex couples.

In their relationships, same-sex couples face the same general economic choices as different-sex couples. They may decide to pool their finances completely, to keep their finances completely separate from each other, or to pool certain of their economic resources while keeping others separate. Yet, despite these identical economic choices, the tax ramifications depend entirely on the taxpayers’ sexual orientation. Different-sex married couples can choose whichever arrangement best suits their needs without worrying about the tax ramifications. Regardless of the extent to which they pool their resources, different-sex married couples are treated as a single economic unit for tax purposes, and transfers within that unit are wholly disregarded. In contrast, same-sex couples who have married or entered into a civil union are treated as two separate, “single” economic units, even if they actually pool all of their economic resources. This means that, far from being disregarded, transactions within a same-sex couple can have serious tax consequences.

Seeing the duty to the tax system in a different light.

The conventional conceptualization of the duty to the tax system harms not only lesbians and gay men but also the tax system itself. A tax lawyer who adheres to the conventional conceptualization of the duty to the tax system in the representation of lesbian and gay clients may harm clients by facilitating the federal government’s immoral (if not illegal) invidious discrimination against them. At the same time, by dint of his or her role as accessory to this discriminatory treatment, the tax lawyer acts contrary to the integrity of the tax system itself, eroding the very integrity that discharging the duty to the tax system is supposed to protect and preserve.

To begin the process of restoring the integrity of the tax system for the benefit of all of us will require tax lawyers to counter the federal government’s use of the tax laws as a tool for invidious discrimination against lesbians and gay men. Where the law is unclear, the tax lawyer will resolve any doubts in favor of the clients, adopting whatever tax characterization does the clients the least harm possible, and will encourage clients to take full advantage of the audit lottery in doing so. The tax lawyer will use every procedural device and failing of the system to the client’s advantage in an effort to prevent the Service from profiting from its own tactical advantages vis-à-vis lesbian and gay taxpayers.

For More Information About the Section of Taxation

- This article is an abridged and edited version of one that originally appeared on page 407 of The Tax Lawyer, Winter 2008 (61:2).

- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.

- Website: www.abanet.org/tax.

- Periodicals: NewsQuarterly, quarterly newsletter; The Tax Lawyer, quarterly journal; monthly e-Newsletter; The Practical Tax Lawyer (published by ALI-ABA in cooperation with the Section), subscription available to Section members at a significant discount.

Books and Other Recent Publications: Effectively Representing Your Client Before the IRS: A Practical Manual for the Tax Practitioner with Sample Correspondence and Forms; Property Tax Deskbook; Sales and Use Tax Deskbook; The State and Local Tax Lawyer, Symposium ed.; A Comprehensive Analysis of Current Consumption Tax Proposals; Value Added Tax: A Model Statute and Commentary.

Anthony C. Infanti is a professor of law at the University of Pittsburgh School of Law. He may be reached at infanti@pitt.edu.

Copyright 2009

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