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June 27, 2013
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discussion of the tax law itself. The Court judged DOMA for its impact on “over 1,000 federal statutes and the whole realm of federal regulations.” Very little was said specifically about federal tax law beyond that. Nevertheless, the federal tax law is clearly among those “federal statutes and regulations” impacted most directly by the Supreme Court’s holding.

IMPACT. Same-sex couples who were married under state law for years prior to 2013 now need to decide whether to amend those prior-year returns still open under the Code’s statute of limitations, to reflect a change from unmarried to married filing status. Same-sex married couples also should consider updating their estate plans, based upon the estate and gift tax impact of Windsor.

INCOME TAX BENEFITS AND DISADVANTAGES

Because of the Supreme Court’s decision, the same tax benefits and disadvantages faced by just-married, opposite-sex couples—in changing from filing as separate, unmarried individuals to filing as married filing jointly (or married filing separately)—are now shared by same-sex married couples. Likewise, however, those same-sex couples not married under state law continue to be subject to the same disadvantages and benefits, and face many of the same strategic decisions, as unmarried heterosexual couples under the federal tax law.

CAUTION. As mentioned, above, resolution is pending on the issue of whether recognition or non-recognition of a same-sex marriage in the State in which the same-sex couple currently reside controls whether the IRS will treat the couple as married for federal tax purposes. Most federal agencies have defined marriage in the past based on a couple’s residency and not where they were married.

FILING STATUS

A taxpayer’s filing status depends in large part—if not exclusively in most cases—on the taxpayer’s marital status. Taxpayers may be single, surviving spouse, head of household, married filing joint returns, or married filing separately. Filing status, in turn, determines the right to many tax benefits, both in terms of access and amount. Income tax rate bracket levels, the standard deduction, personal exemptions, and the adjusted gross income (AGI) amounts at which many tax benefits “phaseout” all hinge upon filing status.

Joint Return Status. Because of the Supreme Court’s Windsor decision, same-sex couples who currently are married under state law are presumably now also barred for federal tax purposes from filing separate returns as unmarried (or as head of household, in most cases); they must file either jointly or married filing separately for 2013 (unless they are divorced or have a final separation agreement in place by the end of 2013). The general rule that has always applied to filing status now presumably applies to same-sex married status as well: an individual’s filing status is determined for the entire year based upon marital status on December 31st of that year. The IRS is expected to issue guidance in this area.

IMPACT. Leading up to the Supreme Court’s decision, many same-sex couples filed protective income tax refund claims using married filing jointly status. A protective refund claim is a claim filed to protect the taxpayer’s right to a potential refund based on a contingent event for a taxable period for which the period of limitations is about to expire. Now that the Supreme Court’s decision is out, full refund claims, rather than protective claims, should be filed going forward.

COMMENT. Under current rules, a taxpayer can sign a joint return if his or her spouse is serving in a combat zone. In other limited cases where one spouse cannot sign the joint return, such as because of injury or illness, the other spouse may sign the return and attach a statement explaining why the spouse was unable to sign. Same-sex couples who are married under state law are now presumably allowed these signing benefits.

COMMENT. Because same-sex marriage is relatively new, the tax implications of divorce of a same-sex couple are only starting to manifest themselves.

The Marriage Penalty. Same-sex married couples who have been denied joint return status under the federal tax laws prior to the Supreme Court’s Windsor decision now need to investigate the effect of joint return status, both for returns that will be filed in the future and for prior year returns still open within the statute of limitations refund-claim period (generally, but not always, three years from filing – see this Briefing, below, for a discussion of this deadline).

The benefits of filing a joint return may not always be greater than filing separately as unmarried individuals. Both differences in tax rate bracket amounts and a variety of income floors and thresholds used to determine the right to certain tax breaks come into play in determining whether some same-sex couples were better off, income tax-wise, before the Supreme Court’s decision; and what they should do now.

IMPACT. Individuals in a relationship who are not married and who each realize approximately the same level of

NO NATIONWIDE EXTENSION OF SAME-SEX MARRIAGE

The Supreme Court struck down Section 3 of DOMA, which defined marriage as a legal union between one man and one woman as husband and wife and defined spouse as only a person of the opposite sex who is a husband or wife. The Supreme Court did not strike down Section 2 of DOMA, which provides that no state, territory or possession of the United States shall be required to give effect to any marriage between persons of the same sex under the laws of any other such jurisdiction or to any right or claim arising from such relationship. Section 2 was not challenged and, therefore, was not at issue in Windsor.

CCH Tax Briefing
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