On June 26, 2013 the United States Supreme Court ruled in Windsor v. United States that Section 3 of DOMA was unconstitutional, retroactive to the date of enactment in 1996. While one could speculate as to how this might affect various Federal Income, Estate and Gift Tax issues for same-sex married couples, clear direction is needed from the Federal Government.
On August 29, 2013 the IRS and Treasury Department issued IR-2013-72 which gave clear direction on some, but not all of the issues. Here is a brief summary of the announcement:
- Federal Recognition:
Same-sex couples that are legally married in any recognized jurisdiction will be treated as married for purposes of Federal Income Tax, Gift Tax and Estate Tax laws. Recognized jurisdictions include same-sex marriages entered into in under the laws of any U.S. state, U.S. territory, the District of Columbia or any foreign country. Civil Unions, registered domestic partnerships and other formal relationships that might be recognized under a state law (but that are not “marriage”) are not considered to be legally married under Federal Tax laws.
- Federal Income Tax Residency:
So long as the same-sex couples are legally married in a recognized jurisdiction they do not have to reside in a jurisdiction that recognizes same-sex marriages. For example, a same-sex couple married under California law would be treated as being married for Federal Tax purposes even if the couple lived in a state that did not recognize same-sex marriages, such as Texas.
- Tax Filing Status:
- Income Tax: 2013 and Later Years: Legally married same-sex couples are required to file their 2013 (and later year’s) Federal Income Tax Returns using the Filing Status of either Married Filing Jointly or Married Filing Separately.2012 and Earlier Years: Legally married same-sex couples may, but are not required to, file original or amended Federal Income Tax Returns for 2012 or earlier years using the Filing Status of either Married Filing Jointly or Married Filing Separately.
- Estate and Gift Tax: 2013 and Later Years: Legally married same-sex couples are required to file their 2013 (and later year’s) Federal Estate and Gift Tax Returns based upon their being considered to be legally married. 2012 and Earlier Years: Legally married same-sex couples may, but are not required to, file original or amended Federal Estate and Gift Tax Returns for 2012 or earlier years based upon their being considered to be legally married.
In some cases, married same-sex couples will no longer have to file a Gift Tax Return for transfers and gifts to their spouse. This may cause surviving same-sex spouses to file an Estate Tax Return (Form 706) to claim the unused Estate Tax Credit Shelter pursuant to the “Portability” rules. This may affect the Federal Income Tax “Basis” for purposes of computing a gain or loss on the sale of an inherited asset.
Statute of Limitations:
The options for 2012 and earlier years are subject to the applicable statutes of limitations. Here are some general guidelines regarding applicable Federal Tax statutes of limitations:
- The statute of limitations never closes where a taxpayer was required to file a Federal Return but failed to do so.
- The statute of limitations for filing an amended Federal Return to claim a refund is generally the later of 3 years from the date the Return was filed or 2 years after the date that the tax was paid. Accordingly, open years currently include 2010, 2011, and 2012.
- Taxpayers who failed to file a Federal Income Tax Return for a particular tax year have 3 years from the original due date of that Return to claim a refund.
After that, the taxpayer might still required to file a Return but they forever give up their right to claim a refund.
Filing Amended Returns:
Presumably, any legally married same-sex couples could elect to file amended Returns, subject to applicable statutes of limitations. However, only taxpayers who expect refunds are likely to elect to file amended Returns, Here is a brief explanation regarding amended Returns:
- Federal Income Tax: Taxpayers who elect to file a refund claim for Federal Income Tax would file an Amended U.S. Individual Income Tax Return (Federal Form 1040X).
- Federal Estate and Gift Tax: Taxpayers who elect to file a refund claim for Federal Estate or Gift Tax would file a Claim for Refund and Request for Abatement (Federal Form 843).
The U.S. Department of Treasury and IRS have clarified certain matters relating to the implementation of certain Federal Tax laws in a post-Windsor world. They are expected to continue to issue more guidelines over the upcoming months.
In the mean time, the Supreme Court Ruling and guidance by the IRS present new challenges and opportunities. All same-sex married couples who were married in 2012 or earlier years should consider exploring the potential benefits or costs of filing amended Returns.
Copyright ©, Keith B. Baker – 2013
This article is designed to be a public resource of general information. It does not constitute “legal advice” nor does it create a “client-attorney” relationship. While the information is intended to be accurate, this cannot be guaranteed. Tax laws are complex and constantly changing as a result of new laws, regulations, court interpretations and IRS pronouncements. Often, there are also various possible interpretations. Further, the applicable rules can be affected by the facts and circumstances of a particular situation. Because of this, some of the information may no longer be correct or may not apply to all situations. We are not responsible for any consequences or losses resulting from your reliance on such information. You are urged to consult an experienced lawyer concerning your particular factual situation and any specific legal questions you may have.
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