On June 26, 2013, the U.S. Supreme Court decided United States v. Windsor, a case involving a same sex couple married in New York, where such marriages are authorized. One of the women died leaving a substantial estate. An estate tax return was filed and the surviving spouse, because of the Defense Of Marriage Act (DOMA), was not entitled to the unlimited spousal deduction that heterosexual couples could take advantage of generally reducing the estate tax on the first death to zero. The spouse filed the return, the IRS disallowed the spousal deduction, and the surviving spouse sued for a refund of taxes paid.
The Supreme Court decision, effectively, determined that DOMA was unconstitutional and that the taxpayer should be treated the same for federal tax purposes whether a traditional married couple or same sex married couple.
In response to the ruling, the Treasury Department (which runs the IRS) needed to change its rules about same sex marriages so that the income and estate taxes would now be the same for either couple.
One question not answered by the Supreme Court was “What if a same sex couple married in a state that allowed such marriage, but now resided in a state which did not?” As part of its rules to comply with Windsor, the IRS has ruled on this as well.
Revenue Rule 2013-17 was issued on August 29, 2013 (operational September 16, 2013). This Revenue Rule uses the prior rulings of the IRS regarding “common law marriage” to establish a blanket rule for all married couples. In 1958 the IRS determined that couples recognized as married in common law states – that is where no formality of marriage is required – but then moving to another state where a ceremony is required are still married for tax purposes. Now the same rationale is held for same sex married couples. The key is where you were married. If married and living in a state that recognizes same sex marriage, you are married for federal tax purposes. If you are married in state that recognizes the marriage and then move to a state that does not, for federal tax purposes you will be treated as married -entitled to all of the benefits (and costs) that are associated with the marriage – wherever you are. This rule does not affect the tax schemes of any individual states or localities.
Caveat- Under the Revenue Rule -Domestic Partnerships and Civil Unions are not marriage and so are not treated as such under the tax code.
For same sex couples the income and estate tax planning techniques long used are now available, but so are the marriage penalty and other tax negatives. So, be sure to see your tax advisor. We at HoganWillig can help you in your planning needs.