Supreme Court Decision on DOMA and Tax Implications for Same‑Sex Couples

CCH Tax Briefing @. Wolters Kluwer H cc SUPREME COURT STRIKES DOWN DOMA HIGHLIGHTS Supreme Court Rules Against DOMA 5 To 4 Joint Returns For Same-Sex Married Couples Tax Refunds Possible “Marriage Penalty” Shared By Same-Sex Couples Estate Planning Strategies Change Employers Expected To Revise Benefit Plans No Nationwide Same-Sex Marriage Mandate INSIDE ISSUSS.AT STAG i cccesseecsovssansspsrsesersevsecseereconseeneanerses Supreme Court’s Holdings oo... esseseseseecceeesees Federal Tax Consequence ......essessessssersserseesees Income Tax Benefits And Disadvantages......... FILIAS STATUS ssvssesssesssroeormsssunsresvesrecesuvsenorunenanees Filing Status, AGI Floors And Threshold AMOUNS ......ccccccescsssseeesseseseeseseeeeseeee Other Same-Sex Couple Income Tax Issues...... Estate And Gift Taxation ....cecccseseceseseeseseses Employee Benefits... sesssssssesssecserseesenteenes Affordable Care Act... cesssssecssseesssssessnnsesssnnes Social Security Benefits... eessccessesseesneees Effective-Date Issues .......ccccccsccssesesscssesseecseeceessees June 27, 2013 Special Report Post-DOMA Tax Implications Loom Large Supreme Court has found that Section 3 of the federal Defense of Marriage Act (DOMA) violates the equal protection clause of the Fifth Amendment of the U.S. Constitution as applied to persons of the [: a5 to 4 decision, the United States same sex who are legally married under the laws of their state (Windsor, S.Ct., June 26, 2013, 2013-2 ustc $50,400). The major- ity, written by Justice Anthony Kennedy, held that DOMA is unconstitutional as a deprivation of the liberty of the person protected by the Fifth Amendment of the Constitution. The decision opens the door for same-sex married couples to enjoy many federal tax- related benefits previously available only to opposite-sex married couples. These include income tax benefits, estate and gift tax ben- efits, taxpayer-friendly employee benefits, and more. Same-sex couples must now also deal with circumstances under the tax law that may create a so-called “marriage pen- alty.””. Employers must prepare for exten- sive changes in the treatment of same-sex couples. And individuals claiming tax cred- its and other provisions under the Patient Protection and Affordable Care Act are im- pacted by the decision. IMPACT. Jt is unclear how quickly the IRS and other federal agencies will re- act to the Supreme Courts decision ...or how quickly same-sex couples may need to act to protect certain rights. Presi- dent Obama has directed all federal agencies, including Treasury and the IRS, to revise their regulations to reflect the Supreme Court’ decision as soon as possible. Many tax professionals had been advising same-sex couples to file protective refund claims in anticipation of a favorable ruling from the Supreme Court. This is one of several strategies that practitioners and taxpayers should follow up on, as well as filing amended returns before the applicable limitations periods expire on back tax years. The decision to strike down DOMA goes be- yond refunds. Same-sex couples need to consider many other tax implications. IMPACT. The Supreme Court did not ex- tend same-sex marriage nationwide; it de- clined to say whether same-sex couples had a Constitutional right to marriage that would override state law. But the Supreme Courts decision has opened up federal benefits —including those under the Inter- nal Revenue Code-- to same-sex couples considered married under state law. The Windsor decision leaves many additional issues unresolved or unclear. Among them are the status of “domestic partnerships” and “civil unions” under state law in con- nection with federal benefits, the status of a same-sex couple married in one state but now residing in a state in which same-sex marriage is not recognized, and the abil- ity of married same-sex couples to divorce without first moving back to a state that recognizes same-sex marriage. CAUTION. Jmmediately after the Wind- sor decision was released, questions arose regarding the impact of residency upon the recognition of marital status for federal tax purposes. Will same-sex couples duly mar- ried in one state who now reside in a state that does not recognize same-sex marriage be entitled to federal benefits, including being able to file jointly under the federal tax laws? ... Or will they be required to file as single under federal law as well as state law? While President Obama on June 27 expressed the view that same-sex mar- riages performed in one state should apply HOUSE_OVERSIGHT_029305