- The IRS Will Treat Lawfully Married Same-Sex Couples as Married For All Federal Tax Purposes
- December 13, 2013
- Law Firm: Hinshaw Culbertson LLP - Chicago Office
The IRS issued IR 2013-72 and Revenue Ruling 2013-17 on August 29, 2013. By doing so, the IRS has resolved one of the key issues which was left open by the Supreme Court’s decision in U.S v. Windsor. It is now clear that the IRS will treat lawfully married same-sex couples as married for all federal tax purposes regardless of where the couple might reside. This means that lawfully married same-sex couples will be treated as married for all federal tax purposes, including filing jointly, alimony deductions, innocent spouse relief, favorable IRA and qualified retirement plan beneficiary payment periods, and tax-free employee benefits (especially tax-free employer health coverage for spouses). Beginning in 2013, lawfully married same-sex couples must file federal income tax returns jointly or as married filing separately.
With regard to federal gift taxes, same-sex couples will be allowed to transfer unlimited amounts of property between one another without subjecting themselves to gift taxes. They will also be allowed to split gifts and thereby maximize the combined gifting capacities.
With regard to federal estate taxes, same-sex couples will be allowed to transfer unlimited amounts of property between one another at death. Marital trusts can now be used to protect same-sex spouses while maximizing each spouse’s federal taxfree amount. Portability of a deceased spouse’s unused federal tax-free amount is now possible.
All lawfully married same-sex couples should file all 2013 federal income tax returns and gift tax returns as married taxpayers. All other federal income tax returns and gift tax returns due, but not yet filed, should also be filed as married taxpayers. If a lawfully married same-sex partner died in 2013 and the federal estate tax return has not yet been filed, the Form 706 should be filed as a married taxpayer and transfers to the surviving spouse may be eligible for the marital deduction.
As a general rule, refund claims for federal income, gift and estate taxes must be filed within three (3) years of the extended due date or within two (2) years after the tax was paid, whichever is later. Because the U.S. Supreme Court struck down Section 3 of Defense of Marriage Act, refund claims are now possible unless the respective statutes of limitation have expired. All lawfully married same-sex couples should consider filing refund claims for all federal taxes paid (including income, gift and estate taxes) within the respective unexpired statute of limitations. Note, however, that all lawfully married couples will not benefit from filing joint income tax returns.
Certain estate planning techniques, particularly the use of marital trusts and the portability of the decedent’s unused tax-free amount, should now be considered. Balancing assets between the spouses tax-free should also be considered for tax planning purposes. Therefore, all lawfully married same-sex couples should consider having their respective estate plans reviewed and updated.
There are a number of property and other statutory rights which remain dependent upon state law. Only spouses have homestead rights, intestacy rights, preference on being executors, the right to elect against a will, and the ability to hold real estate as tenants by the entirety. Only spouses have a right to community property, possible liability for family medical expenses and a statutory preference as a health surrogate. Divorce laws only apply to spouses. If the state of residence does not recognize a same-sex marriage, none of these rights will be conferred upon same-sex spouses for state law purposes—including for state income tax and state estate tax purposes.
Revenue Ruling 2013-17 does not extend to partners in domestic partnerships or parties in civil unions. Because the Windsor case was limited to lawful marriages, domestic partnerships and civil unions are not treated as marriages for federal law purposes. Therefore, if federal law benefits are important to the parties, such same-sex couples may now wish to become lawfully married in a state which allows same-sex marriages.