While this might not have been on everybody’s radar, the IRS kicked down a huge decision for California same-sex couples. But PLR-149319-09 (PDF) has some big importance to California registered domestic partners and same-sex married couple. Long story short, the IRS is now recognizing California’s community property rules. And that’s big. Really big.

Let’s start from the beginning. I’m no accountant, but bear with me as I try to recall my tax class in law school.  Basically, California, like many Western states, has a default rule for marriage that any property acquired (other than through inheritance) is treated as “community property” between the two married spouses.  For California same-gender couples that got married in 2008, these community property rules apply unless you have opted out through contract (a “pre-nup”).  Also, in 2006 and 2007, the legislature passed, and the Governor signed, two pieces of legislation that granted registered domestic partnerships the same rights and responsibilities of marriage, with community property first being excluded for tax purposes in 2006, and then being completely folded in to the RDP in 2007.  

Of course, the problem here is that under the so-called “Defense of Marriage” Act, the federal government was not supposed to recognize any marriage not between a man and a woman. Thus, we had a real pickle on our hands. Under California property law, the property was community property, half belonged to both partners.  But how that property got there was anybody’s guess.  Just off the top of my head, there are a number of ways the federal government could have handled the issue:

1) Ignored community property between same gender couples entirely. Sure, it would cause conflicts with state tax issues, but who cares, according to the Yes on 8 folks, this is a future of civilization thing here.

2) Acknowledge the community property, treating  it as a gift between two unrelated partners for federal tax purposes. This would have been very bad for same-gender couples. Basically, couples would have had to pay gift tax on any difference in income over $13,000 (or so, depending on what the gift tax is that year). That would get pricy fast.

3) Acknowledge the community property, but treat it as earned jointly. Basically, each partner, for tax purposes, earned half of the income. This would be far more favorable and basically treat community property the same for all couples.

I’ll let you read PLR-149319-09 (PDF) on your own if you’d like to, but long story short, the IRS went for #3.  Once they went over the law, it seems obvious, but these things rarely are obvious before hand. And that’s the case here.  The IRS first relied on past precedent to first say that the federal goverment defers to the states to determine property law  (U.S. v. Mitchell) and then to say that California community property law determines who owns what for California couples (US v Malcolm).  Finally, the IRS simply stated that once California treated property as community property, the IRS would do so as well.

Now, in practical terms, what does this mean? Well, say you are a couple where one partner earns substantially more than the other.  You’ll have noticed that your California tax bills went down with community property. Now the same will apply to the federal government. For example, say “Adam” earns $50,000 as a public school teacher.  His husband “Bill” earns $150,000 as a investment hot-shot or something.  (No comment on our society’s priorities there.) Under this new law, each would report income of $100,000. For a variety of reasons in the tax code, that’s going to be advantageous. Now, I’m not a tax lawyer, and this isn’t specific advice.  If this is something that might apply, ask whomever prepares your taxes or some other tax professional.

There is one wrinkle in here. Technically, the IRS “private letter ruling” specifically addresses registered domestic partnerships, and uses that language. However, the ruling is entirely directed at the concept of community property, which applies in the same way for the 2008 marriages.  In theory, it should be handled the same way, but theory often gets you audited by the IRS.

If you’ve been busy waiting for the Prop 8 ruling you may not have been expecting the news yesterday that Section 3 of the so-called “Defense of Marriage” Act was ruled unconstitutional.  But it happened, and you have, at least in part, Martha Coakley to thank for it. (Yes, that Martha Coakley, you can check her out over the flip.) But, this decision is real, and powerful:

In the wake of DOMA, it is only sexual orientation that differentiates a married couple entitled to federal marriage-based benefits from one not so entitled. And this court can conceive of no way in which such a difference might be relevant to the provision of the benefits at issue. By premising eligibility for these benefits on marital status in the first instance, the federal government signals to this court that the relevant distinction to be drawn is between married individuals and unmarried individuals. To further divide the class of married individuals into those with spouses of the same sex and those with spouses of the opposite sex is to create a distinction without meaning. And where, as here, “there is no reason to believe that the disadvantaged class is different, in relevant respects” from a similarly situated class, this court may conclude that it is only irrational prejudice that motivates the challenged classification. As irrational prejudice plainly never constitutes a legitimate government interest, this court must hold that Section 3 of DOMA as applied to Plaintiffs violates the equal protection principles embodied in the Fifth Amendment to the United States Constitution.

This was actually two consolidates cases, the first case being brought by ten married couples (Gill v OPM – decision here), the other being the Massachusetts case (decision here).  In the Mass case, the judge ruled that DOMA violated the 10th Amendment. Yup, the one about the states having power over issues not delegated to the federal government.  It’s not used much, although the right wing is trying to go all anti-Obama with it these days.

Nonetheless, there are a couple of issues for Californians here. First, there are currently about 18-20 thousand same-sex married couples in the state. Give or take for folks who married in other states before moving here pre-2008 and for those relationships that have ended since then.  So, how does this ruling affect us here?

Well, unfortunately, this federal court decision really doesn’t affect us at all.  In theory, the ruling only covers Massachusetts for the time being. The case was brought on behalf of the state, and unless and until it moves up through the 1st Circuit and possibly to the Supreme Court, the case only has persuasive precedential value.  For now, DOMA is still valid in California.

That being said, there are still many ways to challenge DOMA, and this is a big first hurdle of getting a federal judge to call it for what it is: clearly unconstitutional.  We should see additional lawsuits challenging DOMA from a variety of legal fronts over the coming months and years.

Of course, that Prop 8 decision will also play a major role in all this.  The end game is, of course, for universal marriage equality, but the legal doors on the way there are slowly and steadily opening.

Check the flip for an interview with Martha Coakley about the decision as well as an interview with Tobias Wolfe, President Obama’s campaign advisor for LGBT issues.

Background and Coakley:

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Tobias Wolff:

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This measure will not change the two-thirds vote requirement for the Legislature to raise taxes. – Proposition 25, Sec. 2 (2)

Whether progressives support this particular provision of Prop 25 is a matter for another discussion, but that sentence is written in the text of the initiative.  But today, the No on Prop 25 campaign, made the rather bold claim that what you see in front of your face, well, it’s not real.

Opponents of Proposition 25 are taking aim at the language of the initiative to lower the two-thirds legislative vote requirement for passing a budget, saying the measure is written in a way that could allow tax increases to be approved by a majority vote. … But opponents say the actual operative language of the measure, which you can read here, effectively permits raising taxes with a majority vote.

“This is not a check and balance on the Legislature, this is a carte blanche for more taxes,” Teresa Casazza, president of the California Taxpayers Association, said today at a roundtable with reporters (Sac Bee)

Now, I’d like to see some revenue language included somewhere, but the simple fact is that Prop 25 is only about the budget.  Sure, you can come up with some tortured logic that you can just add in a revenue measure to the budget to get a majority vote, but let’s be real here.  Any judge is going to take one look at the initiative, and toss that right out of court.  Games are fun, but in the real world, this measure is about revenue.

Now, of course, this puts us in the position of arguing against a real majority vote. Of course, we need real majority rule, with voters actually deciding the fate of the state without the ridiculous and anti-democratic (small d) pressures of a minority veto.  But, that, I suppose, is an argument for another day.

Field is out with their Senate polling data, and Barbara Boxer maintains a narrow lead over Carly Fiorina, 47-44.The number is an actually an improvement for Boxer over the March 2010 numbers, when Boxer’s lead was just a single point.  In the end, both of these numbers are within the margin of error. All that is to say that we should be expecting a fight for the Senate race this fall.

Whereas Jerry Brown has failed to capture the hearts of some traditional Democratic demographics, Boxer has built on these constituencies. She leads the 18-39 demographic by a 52-33 tally, and Latinos by 55-32.  While turnout will be critical to who wins both elections, Fiorina (and Whitman) need to make serious dents in both areas of support if they are to win their respective elections.

On the flip side, Boxer probably needs to consolidate Democrats a little bit, as it appears that Fiorina has mostly done that on her side of the divide.  But, as the favorability numbers, Boxer is a more polarizing figure.  Her favorability numbers are under water at 11 (4152).  Meanwhile, unlike Whitman who has bought her way into universal recognition, Fiorina is still something of an unknown quantity. She’s at +5,(34-29), but the largest group is “no opinion.”  

The task for the Boxer Team (and allies) is to fill in those blanks.  The story doesn’t even take any aggrandizing. Fiorina is a failed CEO, who was fired by HP for both poor morale, spying on her employees and journalists, and poor performance. Oh, and she was even named the 19th worst CEO in America. Sadly, she was out-terribled by Lehman’s Dick Fuld. Her failed record is not even that much of a mixed bag, she rose to the level of her incompetence, and boy, was she incompetent.

More from Robert: Boxer’s numbers aren’t as strong as we’d like. Her disapproval rating among likely voters is 48%, with 42% approval. What explains this?

The San Francisco Chronicle article on this poll suggests Boxer is suffering from the public’s overall anger at Washington DC:

One of Boxer’s more vexing problems, analysts say, is that opposition to her is not just about her. She has become an avatar for broader voter frustrations about the struggling economy, President Obama and the growth of the federal government.

“It’s a reflection of the effectiveness of a Republican strategy to characterize Sen. Boxer as everything that’s wrong with the government,” said Larry Berman, a professor of political science at UC Davis. Sen. Harry Reid, D-Nev., another longtime Democrat facing a tough re-election challenge, faces a similar predicament, Berman said.

When the economy is struggling, DiCamillo said, “the voters tend to take it out on the incumbents.”

This makes sense to me. We have seen the Obama Administration fail to bring change to this country. Their two accomplishments, the stimulus and health care, were watered down to the point where voters don’t see them as being effective, although Boxer is rightly going out there and showing that the stimulus did indeed create jobs – and that we need more of it.

But with Democratic Senators like Ben Nelson and Blanche Lincoln doing all they can do to destroy the Democratic majority, and with the White House failing to provide strong leadership to challenge this or to achieve progressive ends, Democratic voters are losing confidence and enthusiasm, and other voters are starting to grow uneasy about incumbents as a whole.

Boxer is therefore suffering that collateral damage, even though she has been one of the best, most progressive Democrats we have. However, she is in a stronger position than these toplines suggest.

Fiorina hasn’t gained any support over her March 2010 numbers, and Boxer is down 2 but that is within the margin of error. Independent voters are still with Boxer, 47-39. Boxer, unlike Brown, also retains strong backing from core Democratic constituencies: she leads 52-33 among voters under age 39, and 55-32 among Latinos.

Let’s also recall the USC/LA Times poll from last month, which showed that voters want a Senator who will work to implement Obama’s agenda. That’s Barbara Boxer, who is right to embrace a president who, despite his failures that frustrate voters, remains popular in California.

Finally, we can’t forget that Fiorina is so far to the right that she is going to have a difficult time getting elected here. Fiorina pledges to repeal health care reform and won’t use government to create jobs. She is running as a Herbert Hoover candidate, planning to do to the US what she did to HP.

Californians don’t want that – and Barbara Boxer knows it. The Boxer campaign has a tough fight ahead of it. But it’s a fight she knows how to win.

Yesterday, Arnold Schwarzenegger sued for an injunction requiring Controller John Chiang to impliment his order to cut state worker salaries to the minimum wage.  Controller Chiang has a response:

State Controller John Chiang filed suit today in an attempt to block Gov. Arnold Schwarzenegger’s order to reduce pay for most state workers to the federal minimum wage during the current budget impasse.

Chiang’s suit, filed in Sacramento Superior Court, complains that he is being forced to choose between violating Schwarzenegger’s order or violating various federal and state laws. Read the cross complaint here.(SacBee)

A hearing should be scheduled fairly shortly; we’ll keep you updated on this situation.  The response brings up a number of fairly important issues, such as how to account to corrections employees that are now under federal court receivership, tax implications,  and how to actually deal with the excluded class of six unions that have signed new deals.

The whole order is something of a mess, with Arnold not really considering the implications. Nothing new there.

As Robert just mentioned, the latest Field Poll (PDF) is showing a dead heat between Whitman and Brown. (Though a Reuters poll yesterday showed Brown up by 6, 45-39.)

In terms of favorability, well, these folks seem less popular when the whole affair started.  Brown is at +2 (42-40) and Whitman at 2 (4042).  The big difference is in how the two got there.  Since Brown has been in (and sometimes not so in) the campaign, his favorable numbers have hovered around the lower forties, with his unfavorable gradually growing from 25 in March 2009 to 40 today. A slow but steady rise that is the indicator of a Republican electorate now viewing him as the enemy. No real shock there.  The bigger movement has been in Whitman’s numbers. While she was a relative unknown in March 09, the big change came from March of this year to now.  Back then she was at +13 (40-27), so a net 15 point swing in that unfavorable number. Thank the IEs and Steve Poizner for that one, I suppose.

In terms of the demographic numbers to the right, the one that gives me the most optimism and the most pessimism is the 18-39 year old numbers.  This is a lean-Democratic voting bloc, generally very socially progressive, but Whitman has a statistically small lead.

There are a slew of reasons for this. Of course, Brown is new to us in that age bracket. We don’t remember his last terms in office and he has been hoarding his resources in an attempt to go all out in the fall.  That has meant that Whitman has been dominating the airwaves, even with the IEs throwing out some anti-Meg commercials. This is a demographic that knows eBay and knows Whitman, at least with some notion of her public persona.

Brown clearly needs to do better here. That’s done partially through social media, which has been mentioned around these parts, but also through on the ground organizing that the Obama campaign specialized in.  As of now, there hasn’t been an effort to do a real field campaign from either candidate, but expect that to change fairly soon.

But as CalBuzz points out, there is grounds for optimism for Dems here.  Take the numbers on independents. Whitman needs to at least tie if not win there. She’s heading in the wrong way right now:

Whitman has not done as well as might have been expected with independents. She leads Brown marginally now, 42-39% among non-partisans compared to 50-36% in March. That’s a 3-point lead, down from 14 points. Both candidates are holding their party bases, although Whitman is doing better among Republicans (80-9%) than Brown is doing among Democrats (74-16%).

It’s going to be an interesting four months as we head into Nov. 2.