Legal Same-Sex Marriages Recognized Under Federal Tax Laws

In June, the United States Supreme Court in United States v. Windsor struck down the 1996 Defense of Marriage Act. In Windsor, the Court decided that same sex married couples would be entitled to all deductions available under the federal estate tax regime. Since same sex marriage is still only permitted in a handful of states, it was uncertain how the Supreme Court’s decision would be applied to same sex married couples residing in all fifty states. On August 29, 2013, the Internal Revenue Service and United States Department of Treasury announced that legally married same-sex couples would be treated as married for all federal tax purposes, including income, gift and estate tax purposes, regardless of the current domicile of the married taxpayers. This landmark decision significantly impacts gay and lesbian rights under the nation’s tax laws.

Citing the needs for efficiency and the desire to protect individuals and employers from reporting uncertainty and significant financial and administrative burdens, the IRS and Treasury Department held in Revenue Ruling 2013-17 that couples of the same sex who marry in a U.S. state, U.S. territory or foreign country where same sex marriages are legally recognized will be entitled to the same tax benefits under federal law as married couples of the opposite sex and common law married couples. This ruling applies to all legally married same sex couples, even if the couple currently resides in a state that does not recognizes same sex marriages. The IRS and Treasury Department did state, however, that this ruling will not apply to domestic partnerships, civil unions or similar formal relationships that do not constitute a “marriage” under the laws of the particular state where such formal relationship was entered.

Any tax matter that is impacted by the marital status of the taxpayer is subject to this ruling, including income taxes, gift taxes, estate taxes, employee benefit plans, IRA contributions and certain tax credits. Employers will need to be aware of these rules when administering plan benefits. Furthermore, the IRS and Treasury Department specifically acknowledge that prior tax filings can be amended to take advantage of this ruling so long as the applicable statute of limitations on that filing has not run (typically three years after the date the tax return was filed).

As a result, Revenue Ruling 2013-17 opens the door to same sex couples on many of the tax planning benefits currently employed by other married couples, both as it relates to pre-death gifting and as it relates to post-death estate administration and tax avoidance tools. Given the material impact these tools can have on a married couple’s estate plan and tax filings, all same sex married couples should consult with their tax advisors and their estate planning attorney to create an estate plan (or adjust an existing plan) to take full advantage of these previously unavailable tax benefits. Employers and other third parties administering plans should also discuss the impact of these rules with their tax and legal advisers.

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