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CCH Tax Briefing
Wolters Kluwer
CCH

SUPREME COURT STRIKES DOWN DOMA

June 27, 2013
Special Report

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
Issues At Stake...2
Supreme Court's Holdings...2
Federal Tax Consequences...2
Income Tax Benefits And Disadvantages...3
Filing Status...3
Filing Status, AGI Floors And Threshold Amounts...4
Other Same-Sex Couple Income Tax Issues...5
Estate And Gift Taxation...6
Employee Benefits...7
Affordable Care Act...8
Social Security Benefits...9
Effective-Date Issues...9

Post-DOMA Tax Implications Loom Large

In a 5 to 4 decision, the United States 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 same sex who are legally married under the laws of their state (Windsor, S. Ct., June 26, 2013, 2013-2 USTC ¶50,400). The majority, 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 benefits, 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 penalty." Employers must prepare for extensive changes in the treatment of same-sex couples. And individuals claiming tax credits and other provisions under the Patient Protection and Affordable Care Act are impacted by the decision.

IMPACT. It is unclear how quickly the IRS and other federal agencies will react to the Supreme Court's decision ...or how quickly same-sex couples may need to act to protect certain rights. President Obama has directed all federal agencies, including Treasury and the IRS, to revise their regulations to reflect the Supreme Court's 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 beyond refunds. Same-sex couples need to consider many other tax implications.

IMPACT. The Supreme Court did not extend same-sex marriage nationwide; it declined to say whether same-sex couples had a Constitutional right to marriage that would override state law. But the Supreme Court's decision has opened up federal benefits --including those under the Internal 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 connection 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 ability of married same-sex couples to divorce without first moving back to a state that recognizes same-sex marriage.

CAUTION. Immediately after the Windsor 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 married 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 marriages performed in one state should apply

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