IRS Clarifies Windsor’s Application to Federal Tax Laws

September 27, 2013Articles Estate Planning Blog

As we mentioned in an earlier post, the Supreme Court's decision in Windsor left a significant unanswered question: If a same-sex couple marries in a state that recognizes their marriage, but resides in a state that does not, are they treated as married for purposes of the federal tax laws? The IRS answered this question with a resounding "YES" in Revenue Ruling 2013-17 and two sets of Frequently Asked Questions.

The IRS's guidance validates the "place of celebration" rule. This means that the IRS will recognize a same-sex couple as married if they were validly married in a domestic or foreign jurisdiction whose laws authorize same-sex marriage, regardless of where they reside. "Marriage" does not include registered domestic partnerships, civil unions or other similar formal relationships that are not labeled as "marriage" under a state's law.

This Ruling might create an opportunity for you to connect with your clients. The IRS will apply the Ruling prospectively as of September 16, 2013, but taxpayers may rely on the Ruling for purposes of filing original or amended returns, or claims for credit or refund, so long as the limitations period has not run.

If you are a CPA, have you prepared income tax returns for any same-sex couples married in a state that permits same sex marriage? Should you review these returns for possible refund opportunities based upon a change in marital status? For example, did your client's employer provide health insurance benefits to a same-sex spouse and then include those benefits in your client's gross income? Or, have you recently prepared a federal estate tax return where estate tax was paid because the marital deduction was not available, even though the decedent was survived by a same-sex spouse? In either case, a refund may be available.

If you are a financial advisor, should you review beneficiary designations for same-sex spouses participating in qualified plans? Designating anyone other than a spouse as a beneficiary of a qualified plan requires written spousal consent. The Department of Labor says that this rule now applies to same-sex spouses. You should make sure your clients' beneficiary designations will be honored.

These are only 2 examples of client service opportunities that may exist because of this Ruling. There are more than 200 Internal Revenue Code provisions and Treasury regulations that include the terms "spouse", "marriage", "husband and wife", "husband" and "wife”. What opportunities do the application of these to same-sex marriages create for you?