CCH Tax Briefing\
SUPREME COURT STRIKES DOWN DOMA\
June 27, 2013\
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\
Special Report\
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 taxrelated\
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\
2\
2013 Expert Analysis\
to another, he added that “I’m speaking as a\
president and not as a lawyer.”\
ISSUES AT STAKE\
In December 2012, the Supreme Court announced\
that it would take up two cases related\
to same-sex couples: Windsor, which\
arose out of an estate tax dispute between a\
surviving partner/spouse and the IRS; and\
Hollingsworth v. Perry (CA-9, Feb. 7, 2012),\
which addressed whether the equal protection\
clause of the Fourteenth Amendment to\
the Constitution prohibits California from\
defining marriage as the union of a man and\
woman. The Supreme Court heard oral arguments\
in both cases in March 2013.\
IRS Denies Estate Tax Marital Deduction.\
In Windsor, a long-time same-sex couple\
married in Canada in 2007. They had previously\
registered as domestic partners in New\
York City, where they made their home. One\
spouse died in 2009. Because of DOMA, the\
survivor did not qualify for the unlimited\
marital deduction under the Internal Revenue\
Code and as a result, the executor of the estate\
paid \$363,000 in federal estate tax that was\
not otherwise due. The survivor as executor\
and sole beneficiary filed a refund claim under\
Code Sec. 2056(a) (under which property of\
a surviving spouse generally passes free of federal\
estate tax). The IRS determined that the\
survivor was not a spouse under Section 3 of\
DOMA and, therefore, not a surviving spouse\
under Code Sec. 2056(a). A federal district\
court found that Section 3 of DOMA violated\
the equal protection clause of the Fourteenth\
Amendment because there was no rational\
basis to support it. The Second Circuit Court\
of Appeals affirmed the lower’s court decision,\
finding that homosexuals are a protected class\
and that Section 3 of DOMA was not substantially\
related to an important government\
interest and violated Equal Protection.\
SUPREME COURT’S\
HOLDINGS\
Writing for the majority in Windsor, Justice\
Kennedy found that DOMA had departed\
from the long standing tradition and history\
of reliance on state law to define marriage.\
The State of New York had recognized\
the validity of same-sex marriages, which\
resulted in a status that “is a far-reaching\
legal acknowledgment of the intimate relationship\
between two people, a relationship\
deemed by the State worthy of dignity in the\
community equal with all other marriages,”\
Kennedy wrote. He reasoned that DOMA\
sought to injure this class of persons whom\
New York sought to protect, and by doing so\
violated basic due process and equal protection\
principles applicable to the federal government\
and was therefore unconstitutional.\
“The decision opens the\
door for same-sex couples\
to enjoy many tax-related\
benefits previously\
available only to oppositesex\
couples.”\
DOMA’s operation in practice, Kennedy\
continued, was to treat same-sex marriages as\
second-class marriages for purposes of federal\
law “by imposing a system-wide enactment\
with no identified connection to any particular\
area of federal law.” DOMA’s principal\
purpose was to impose inequality, not for\
other reasons such as governmental efficiency,\
Kennedy held. Therefore, the majority\
found DOMA invalid for lack of a legitimate\
government purpose that could overcome\
the burden on those within the class whose\
personhood and dignity New York had\
sought to protect through its marriage laws.\
COMMENT: The majority opinion\
listed numerous ways in which DOMA\
infringed upon the dignity of same-sex\
couples. Among these is financial harm\
caused by DOMA to children of same-sex\
couples by raising the cost of health care\
for families by taxing health benefits provided\
by employers to their workers’ samesex\
spouses. Another example, Kennedy\
wrote, is that DOMA denies or reduces\
benefits allowed to families upon the loss\
of a spouse and parent, benefits that are\
an integral part of family security.\
COMMENT: Justice Kennedy qualified\
the majority’s ruling at the end of the decision,\
stating that its applicability was\
“confined to those lawful marriages,”\
meaning those recognized by the states\
that currently allow same-sex marriages.\
Kennedy observed that Section 2 of\
DOMA, which allows States to refuse to\
recognize same-sex marriages performed\
under the laws of other States, had not\
been challenged in Windsor and continues\
to be the law. On June 26, House\
Democrats introduced legislation to repeal\
Section 2 of DOMA.\
California’s Proposition 8. On the same day\
the Supreme Court announced its decision in\
Windsor, the Justices ruled, 5-4 (but with a different\
mix of Justices for and against), to send\
Hollingsworth back to the California courts\
rather than to directly decide on the constitutionality\
of California’s ban on same-sex marriage.\
There, the Supreme Court held that the\
petitioners did not have the standing to challenge\
the lower court’s decision throwing out\
Proposition 8, which denied same-sex couples\
the right to marry in California. This decision\
paves the way for same-sex marriage to begin\
again in California sometime in late July.\
FEDERAL TAX\
CONSEQUENCES\
Under federal income tax rules, same-sex\
married couples can now presumably enjoy\
benefits that had been unavailable to them\
because of DOMA. On the other hand, certain\
strategic advantages previously enjoyed\
by same-sex married couples who filed as\
single individuals under the federal tax laws,\
have now likewise ended.\
COMMENT. Aside from the fact that it\
was a federal tax refund claim in Windsor\
that triggered the litigation that found\
itself before the U.S. Supreme Court, the\
opinion focused on Constitutional rights\
and privileges, without any technical\
CCH Tax Briefing\
©2013 CCH Incorporated. All Rights Reserved.\
June 27, 2013\
3\
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 samesex\
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 31 st 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\
4\
2013 Expert Analysis\
income and have similar tax deductions\
(at least in amount) have generally been\
better off from a tax standpoint filing as\
unmarried individuals. However, that\
assessment tilts in favor of marriage and\
filing a joint return if one partner earns\
or deducts the greater portion of any otherwise\
combined amounts.\
COMMENT. Although much press was\
given to “marriage penalty relief” when\
the Bush-era tax cuts were permanently\
extended by the American Taxpayer Relief\
Act of 2012 (ATRA), such relief in fact\
only related to equality within the standard\
deduction amount and the top portion\
of the 15 percent income tax bracket.\
Other “marriage penalties” continue to\
exist within the tax law depending upon\
circumstances. For example, the 33 percent\
tax bracket for joint filers in 2013\
starts at \$223,050 taxable income, while\
the 33 percent bracket for single taxpayers\
starts at \$183,250. If there were no marriage\
penalty imposed on higher-income\
individuals earning similar amounts, the\
33 percent bracket for joint filers would\
not start until reaching the \$366,500\
level, or double that set under the Internal\
Revenue Code for single filers.\
Married Filing Separately. If same-sex\
married couples post-Windsor want to keep\
their finances (and liabilities) separate for the\
purpose of filing separate returns, they will\
generally—but not always—pay more federal\
income tax. The rate brackets for “married\
filing separately” are higher than “unmarried,\
not surviving spouse or head of household.”\
Innocent Spouse Status. Married taxpayers\
who file joint returns are jointly and severally\
responsible for the tax and any interest or penalty\
due on the joint return. In some cases, a\
spouse will be relieved of this shared liability for\
tax owed on a joint tax return. Three types of\
relief are available: general innocent spouse relief;\
separate liability relief; and equitable relief.\
IMPACT. Because of the Supreme\
Court’s decision, the three types of innocent\
spouse relief are now presumably\
available to same-sex married couples.\
Same-sex married partners cannot turn\
a blind eye to any item that is listed on\
a joint return. A decision to file joint\
returns retroactively for prior tax years\
as the result of the Supreme Court’s decision,\
therefore, should include consideration\
of the joint and several liability\
that would be triggered. Separate return\
status would eliminate the issue of joint\
liability entirely. The IRS is expected to\
issue guidance in this area.\
Surviving Spouse Claims. A surviving\
spouse computes tax using the same rate\
brackets as married couples filing joint returns.\
Rules for surviving spouse status for\
same-sex married couples now presumably\
follow the same rules as for opposite-sex\
couples. If a taxpayer is a surviving spouse,\
the year the spouse died is the last year for\
which the taxpayer can file a joint return\
with that spouse. A taxpayer can also qualify\
as surviving spouse for two tax years following\
the year in which his or her spouse\
dies if the taxpayer maintains a household\
for certain dependents (a child, adopted\
child, foster child, or stepchild), has not\
remarried, and filed or could have filed a\
joint return with the spouse for the year in\
which his or her spouse died.\
FILING STATUS, AGI FLOORS\
AND THRESHOLD AMOUNTS\
The amounts of income and deductions\
reported on a return are used by the IRS\
in determining whether certain threshold\
levels and floors are reached. Those\
amounts in turn determine access to a variety\
of tax benefits. Some of these floors\
or threshold amounts are applied to all\
filing statuses uniformly; others vary depending\
upon filing status.\
IMPACT. Depending upon adjusted gross\
income (AGI) and other levels reported\
on a return, combining the income and\
deductions of each same-sex partner under\
a single joint return may or may not\
work to the advantage of the couple as a\
unit, in contrast to filing as unmarried or\
married filing separately.\
Floors. Tax benefits dependent upon floor\
levels of adjusted gross income (AGI) or\
modified AGI (MAGI) set forth under the\
Internal Revenue Code include the following\
itemized deduction categories, among others:\
Medical expense deduction floor (10\
percent AGI (temporarily at 7.5 percent\
for taxpayers over age 65));\
Casualty loss deduction floor (10 percent\
AGI); and\
Miscellaneous items deduction floor (2\
percent AGI).\
COMMENT. In the case of married individuals\
who file separate returns, if one\
spouse itemizes deductions on his or her\
return, the other spouse must also do so irrespective\
of whether his or her standard\
deduction would be larger. This rule does\
not apply to unmarried couples who file\
separate returns.\
Ceilings. Use of excess capital losses to offset\
ordinary income is generally limited to\
\$3,000 per return, whether on a joint return\
or an unmarried single return. Taxpayers\
who are married filing separately, however,\
are allowed only a \$1,500 maximum capital\
loss deduction; the balance in all cases may\
be carried forward into the next tax year.\
Thresholds. For some taxpayers, AGI above\
designated thresholds reduces certain tax\
benefits. A reduction in itemized deductions\
and a reduction in personal exemptions\
are the most common among higherincome\
individuals. For example:\
Itemized deductions otherwise allowed must\
be reduced by the lesser of (1) three percent of\
AGI that exceeded a threshold amount (see\
chart, below) adjusted annually for inflation,\
or (2) 80 percent of the total amount of otherwise\
allowable itemized deductions. No reduction\
is required in the case of deductions\
for medical expenses, investment interest,\
and casualty, theft or wagering losses.\
Personal exemptions, likewise, are required\
to be reduced where AGI exceeds a specified\
threshold amount: by two percent for each\
\$2,500 (or fraction thereof) by which AGI\
CCH Tax Briefing\
©2013 CCH Incorporated. All Rights Reserved.\
June 27, 2013\
5\
exceeds the applicable threshold amount\
(see chart, below) for the year (\$1,250 for\
married persons filing separately).\
Net Capital Gains/ Net Investment Income.\
AGI thresholds are also used in taxing\
investment-type income:\
Net Capital Gains are taxed at the 20\
percent maximum rate at levels beyond\
which income would otherwise be\
pushed into the 39.6 percent bracket\
(for 2013, that applicable threshold\
amount is \$450,000 AGI for married\
individuals filing joint returns and surviving\
spouses, \$425,000 for heads of\
households, \$400,000 for single individuals,\
and \$225,000 for married individuals\
filing separate returns. (The\
“regular” 15 percent capital gains rate\
is likewise reduced to zero percent for\
taxpayers in the 10 percent bracket—\
a benefit that can be used by same-sex\
couples where one partner has very\
little income).\
Net Investment Income, as defined under\
new Code Section 1411, is taxed\
starting in 2013 at 3.8 percent, keyed\
to a modified AGI threshold based on\
filing status (\$250,000 for joint filers;\
\$125,000 for married, filing separately;\
and \$200,000 for all others).\
Deduction/Credit Thresholds. Thresholds\
are also commonly used to restrict deductions,\
credits and other benefits based upon adjusted\
gross income and filing status:\
2013 AGI (MAGI) PHASEOUT THRESHOLD START POINTS\
Joint Return Single Married Filing Separately\
Itemized Deductions: \$300,000 \$250,000 \$150,000\
Personal Exemptions: \$300,000 \$250,000 \$150,000\
Maximum Net Capital Gains: \$450,000 \$400,000 \$225,000\
Net Investment Income Surtax: \$250,000 \$200,000 \$125,000\
Additional Medicare Tax: \$250,000 \$200,000 \$125,000\
Child Tax Credit: \$110,000 \$75,000 \$55,000\
American Opportunity Credit: \$160,000 \$80,000 \$0\
Lifetime Learning Credit: \$107,000 \$53,000 \$0\
IRA Deduction (plan participants): \$95,000 \$59,000 \*\
Roth IRA Eligibility: \$178,000 \$112,000 \*\*\
\*Deduction determined under single status if not living with spouse at anytime during tax year; otherwise partial deduction if MAGI is less than\
\$10,000 and no deduction if MAGI is \$10,000 or more\
\*\*\$10,000 if lived with spouse at anytime during tax year; \$112,000 if did not live with spouse at anytime during tax year\
IMPACT. In dealing with threshold\
amounts, a benefits/drawbacks analysis generally\
depends upon the extent to which that\
portion of any tax benefit below a threshold\
amount would otherwise go unused by\
one of the partners if filing separately. With\
certain deductions, credits or contribution\
levels, however, electing “married filing separately”\
status may relegate each spouse to\
\$0 benefit depending upon circumstances.\
OTHER SAME-SEX COUPLE\
INCOME TAX ISSUES\
Being married for federal tax purposes—exclusive\
of the right to any particular filing\
status—can also give rise to additional tax\
benefits and restrictions. The following situations\
may be particularly relevant in the\
case of married same-sex couples after the\
Supreme Court’s Windsor decision:\
Dependency Exemptions. In 2012, the\
IRS explained on its website that if a child\
is a qualifying child under Code Sec. 152(c)\
and both parents are same-sex partners,\
either parent, but not both, may claim a\
dependency deduction for the qualifying\
child if separate returns are filed. If both\
parents can otherwise claim a dependency\
deduction for the child on their income tax\
returns, the IRS will treat the child as the\
qualifying child of the parent with whom\
“Same-sex couples may\
find that the benefits of\
filing a joint return may\
not always be greater than\
filing separately...”\
the child resides for the longer period of\
time. If the child resides with each parent\
for the same amount of time during the tax\
year, the IRS will treat the child as the qualifying\
child of the parent with the higher adjusted\
gross income.\
CCH Tax Briefing\
6\
2013 Expert Analysis\
COMMENT. The Supreme Court decision\
will presumably trigger tie-breaker\
rules and divorce settlement agreements\
previously available only to opposite-sex\
married couples.\
Education Benefits. Access to a number of\
education tax credits by same-sex couples\
has been limited, both because of a student’s\
status as a member or non-member of the\
taxpayer’s family and because lower phaseout\
levels that apply to unmarried filers.\
AOTC and Lifetime Learning Credit:\
A taxpayer can claim the American Opportunity\
Tax Credit (AOTC) or the\
Lifetime Learning Credit for qualified\
expenses paid by the taxpayer for the\
education of the taxpayer, the taxpayer’s\
spouse, or the taxpayer’s claimed dependent\
for the tax year for which the credit\
is claimed. Because of DOMA, a taxpayer\
could not claim the AOTC or Lifetime\
Learning Credit for qualified expenses\
paid by his or her same-sex spouse.\
Coverdell Education Savings Accounts.\
A Coverdell Education Savings\
Account (ESA) is a savings vehicle\
similar to an individual retirement\
account (IRA). If a Coverdell ESA\
is transferred to a surviving spouse as\
the result of the beneficiary’s death,\
the Coverdell ESA retains its status\
and the spouse may treat the account\
as his or her own and need not withdraw\
the assets as a result of the transfer.\
Because of DOMA, this treatment\
had been unavailable to the surviving\
spouse of a same-sex married couple.\
IRA Withdrawals For Education.\
Taxpayers who own IRAs (traditional,\
Roth, SEP IRAs and SIMPLE\
IRAs) can make penalty-free withdrawals\
to pay higher education expenses\
to the extent the distribution\
does not exceed the qualified higher\
education expenses of the taxpayer,\
the taxpayer’s spouse, or the child or\
grandchild of the taxpayer or the taxpayer’s\
spouse. Once again, because\
of DOMA, this treatment had been\
unavailable to the surviving spouse of\
a same-sex married couple.\
Post-Death IRA Payments. When a surviving\
spouse is the beneficiary of an individual\
retirement account (IRA) he or she has certain\
options not granted to other beneficiaries,\
including the ability to rollover the decedent’s\
IRA, tax free, to another retirement\
plan. And, if the surviving spouse is the sole\
beneficiary, he or she can elect to treat the\
IRA as if it were his or her own. These options\
may allow the survivor to delay the\
start of required minimum distributions\
(RMDs) from the account and to stretch\
out the payment of RMDs over a longer period\
of time. DOMA had foreclosed these\
more favorable spousal benefits for same-sex\
married spouses. The Supreme Court’s decision\
in Windsor presumably opens up these\
distribution benefits to same-sex spouses.\
“In the case of family\
attribution rules, it is\
unclear whether application\
of marital status for samesex\
spouses relates back\
to transactions already\
completed.”\
Family Stock Attribution Rules. Code Sec.\
267 contains attribution rules designed to\
prevent related taxpayers (including “spouses”\
under Sec. 267(c)(4)) from recognizing\
losses and other tax benefits otherwise allowed\
in a variety of transactions. For example,\
an individual is treated under Code\
Sec. 318(a)(1) as constructively owning stock\
owned directly or indirectly by his or her\
spouse (unless legally separated), children,\
grandchildren, or parents. Stock attribution\
rules under Code Sec. 318 apply when determining\
whether a redemption of stock is\
treated as a sale or exchange or as a dividend.\
Likewise, prohibited transactions involving\
pension plans under Code Sec. 4975 are\
defined, in part, upon dealing with certain\
persons, including spouses of those persons.\
IMPACT. The Supreme Court’s grant of\
federal marital status to same-sex married\
persons is apparently not only prospective\
starting June 26, 2013, the date of the\
Windsor decision, but also presumably\
applies retroactively to all open years.\
Nevertheless, in the case of attribution\
rules, application of marital status for\
same-sex spouses may not necessarily relate\
back to transactions already completed.\
The need under the tax laws to\
have finality for transactions as they occur\
appears to be the overriding argument\
in favor of not giving retroactive effect to\
family attribution. Eventual IRS guidance\
on this issue is anticipated.\
Resident And Non-Resident Aliens. Presumably,\
the Supreme Court’s decision applies\
to same-sex resident or nonresident\
aliens to the extent they are considered married\
under the law of a foreign jurisdiction.\
Further clarification of the application of\
the Supreme Court’s Windsor decision to\
these taxpayers may be needed.\
ESTATE AND GIFT TAXATION\
The Windsor case, as discussed above in this\
Briefing, involved the estate tax marital deduction.\
The marital deduction is a key planning\
tool to defer transfer taxes until the\
surviving spouse dies. Because of DOMA,\
same-sex married couples could not take\
advantage of the estate tax marital deduction\
and other provisions, such as portability.\
DOMA also precluded same-sex married\
couples from the benefits of special rules for\
gifts between spouses and from spouses.\
Marital Deduction. Code Sec. 2056 provides\
an unlimited deduction from the gross estate\
for property passing from a decedent to a surviving\
spouse. Generally, the decedent must\
be survived by his or her spouse who is a U.S.\
citizen at the time of the decedent’s death, the\
property interest must have passed from the\
decedent to the spouse, and the property interest\
must be a deductible interest. Additionally,\
the property’s value must be ascertainable.\
IMPACT. The relatively high \$5.25 million\
estate tax exclusion for 2013 for\
all estates makes addition of a marital\
CCH Tax Briefing\
©2013 CCH Incorporated. All Rights Reserved.\
June 27, 2013\
7\
deduction unnecessary in the majority of\
cases. However, as Windsor showed, it is\
a valuable tax benefit for larger estates.\
Many same-sex married couples may find\
it valuable to revisit their estate plans to\
make certain that interests passing to the\
other spouse qualify for the marital deduction\
and other tax benefits.\
Portability. The American Taxpayer Relief\
Act of 2012 extended permanently the concept\
of portability, which generally allows\
the estate of a surviving spouse to utilize the\
unused portion of the estate tax applicable\
exclusion amount of his or her last predeceased\
spouse. Because of DOMA, only\
opposite-sex married couples could take advantage\
of portability.\
IMPACT. The Supreme Court’s decision\
presumably enables same-sex married\
couples to take advantage of portability as\
part of their estate planning. The IRS is\
expected to issue guidance.\
Gifts. Because of DOMA, only oppositesex\
married couples were allowed to “split”\
gifts to take advantage of a doubled annual\
gift tax exclusion (\$14,000 for 2013, for\
a total tax-free gift of \$28,000). DOMA\
presented even more of a disadvantage\
for same-sex married couples in that only\
transfers between spouses, where both individuals\
are U.S. citizens, are allowed an\
unlimited gift tax exclusion under Code\
Sec. 2523.\
IMPACT. Same-sex married couples can\
now presumably transfer assets between\
themselves with no concern of lifetime gift\
tax consequences. This creates considerably\
greater flexibility for estate planning.\
The IRS is expected to issue guidance.\
COMMENT. Gifts to cover medical and\
education expenses for an individual, if\
paid directly to the medical or education\
provider, are gift tax free without limit\
and are not counted against the annual\
\$14,000 exclusion for any individual.\
COMMENT. Where one spouse is not a\
U.S. citizen, the annual exclusion from\
gift taxes for gifts made to the noncitizen\
spouse is \$143,000 for 2013.\
EMPLOYEE BENEFITS\
Perhaps in no area outside of income taxes is\
the impact of the Supreme Court’s decision\
more expansive than on employee benefits.\
Because of DOMA, employers that allow an\
employee to add his or her same-sex spouse\
to their health plan had to impute income\
to the employee for federal income tax purposes\
equal to the fair market value of health\
coverage provided to the same-sex spouse.\
If the same-sex spouse qualified as a dependent,\
this rule did not apply. DOMA also\
precluded same-sex married couples from\
sharing the same benefits of health flexible\
spending accounts, health savings accounts\
and health reimbursement arrangements\
available to opposite-sex married couples.\
IMPACT. Employers in states that allow\
same-sex marriage will presumably need\
to amend plans to cover same-sex married\
spouses. The IRS is expected to provide guidance\
on the timing of plan amendments, including\
the issue of whether benefits need to\
be made retroactive or only prospective from\
the date of the Windsor decision.\
Domestic Partners. Many employee benefit\
plans in the private and public sectors\
refer to domestic partners rather than samesex\
spouses. The definition of domestic\
partner varies. In some cases, it may encompass\
opposite-sex domestic partners as\
well as same-sex domestic partners.\
COMMENT. The federal government’s\
Office of Personnel Management defines\
domestic partner for purposes of federal\
employee benefits as a committed relationship\
between two adults, of the same sex.\
Tax Treatment. Domestic partners who are\
not married under state law are not treated\
as spouses for federal income tax purposes.\
As a result, an employee must continue\
to pay taxes on the fair market value of\
the coverage for the employee’s domestic\
partner (whether the domestic partner is a\
same-sex partner or an opposite-sex partner).\
However, domestic partner benefits\
are tax-free if the employee’s partner qualifies\
as a dependent under Code Sec. 152;\
that is, if benefits are paid for a person who\
meets the following requirements:\
Receives more than half of his or her\
support from the taxpayer for the year.\
Uses the taxpayer’s home as the principal\
abode and is a member of the taxpayer’s\
household during the entire tax year.\
Is in a relationship with the taxpayer\
that is not a violation of local law.\
IMPACT. The Supreme Court’s decision\
may open the window to refunds of taxes\
paid by employees on income imputed to\
employees for same-sex married spouse\
and refunds of payroll taxes paid by employers\
on that income. FICA tax refund\
claims by employers and employees for\
prior, open years may also be possible.\
COMMENT. Some employers have attempted\
to equalize the treatment between\
opposite-sex couples and same-sex\
couples by providing so-called gross-ups\
to cover the additional taxes that samesex\
couples pay on health benefits. Many\
employers require an employee to certify\
that a domestic partner qualifies as a dependent\
under Code Sec. 152.\
Cafeteria Plans. Employer contributions to\
a cafeteria plan are usually made under a salary\
reduction agreement between the employer\
and the employee in which the employee agrees\
to contribute a portion of his or her salary on\
a pre-tax basis to pay for the qualified benefits.\
Salary reduction contributions are not actually\
or constructively received by the participant.\
Therefore, those contributions are not considered\
wages for federal income tax purposes. In\
addition, those sums generally are not subject to\
FICA and FUTA taxes. However, pre-tax dollars\
could not be used to pay for coverage of a\
same-sex spouse because of DOMA. This now\
should change as a result of the Court’s decision.\
Health Flexible Spending Accounts. A\
health flexible spending arrangement (FSA)\
CCH Tax Briefing\
8\
2013 Expert Analysis\
is a form of cafeteria plan benefit, funded\
by a voluntary salary reduction arrangement\
with pretax dollars. The benefits are\
subject to an annual maximum and an annual\
“use-or-lose” rule. Qualified medical\
expenses are those incurred by, among other\
individuals, the employee and his or her\
opposite-sex spouse. Because of DOMA,\
only opposite-sex married couples could use\
health FSA dollars for a spouse’s qualified\
medical expenses.\
IMPACT. The Supreme Court’s decision\
to strike down DOMA presumably opens\
the door to same-sex married couples being\
able to use FSA dollars for qualified\
medical expenses of both spouses. The IRS\
is expected to issue guidance.\
COMMENT. A cafeteria plan may not\
allow an employee to request salary reduction\
contributions for a health FSA in\
excess of \$2,500 for plan years beginning\
after December 31, 2012.\
Health Savings Accounts. A health savings\
account (HSA) is a vehicle that eligible taxpayers\
can use to pay for or reimburse qualified\
medical expenses. Contributions to\
an HSA are tax-deductible (employer contributions\
are excluded from gross income)\
and distributions are tax-free if used to pay\
for qualified medical expenses. To be an eligible\
taxpayer, the individual, among other\
requirements, must be covered by a high-deductible\
health plan (HDHP), not enrolled\
in Medicare, not claimed as a dependent on\
another taxpayer’s return. Qualified medical\
expenses are those incurred by, among\
others, the taxpayer and his or her spouse.\
Because of DOMA, only opposite-sex married\
couples could HSA dollars for a spouse’s\
qualified medical expenses.\
IMPACT. With DOMA being struck\
down by the Supreme Court, same-sex\
married couples will presumably be able\
to use HSA dollars for qualified medical\
expenses of both spouses.\
COBRA/FMLA. Federal law requires that\
certain employers offer continuation of health\
care coverage to employees, their spouses,\
and families (“COBRA coverage’). Current\
federal laws related to COBRA coverage do\
not apply to same-sex married couples. The\
DOMA definition of spouse precludes the\
extension of Family and Medical Leave Act\
(FMLA) leave benefits to opposite-sex partners.\
After the Supreme Court’s decision in\
Windsor, these rights presumably would now\
be available to same-sex spouses.\
“The IRS is expected\
to provide guidance on\
the timing of employee\
benefit plan amendments,\
including the issue of\
whether benefits need to\
be made retroactive or\
only prospective.”\
Retirement Plans. The Internal Revenue\
Code provides extensive protections\
for the spouse of an employee to share in\
the employee’s retirement benefits payable\
through Code Sec. 401(k) plans and other\
qualified plans. These protections would\
presumably now apply to the same-sex\
spouse of an employee.\
AFFORDABLE CARE ACT\
The Patient Protection and Affordable Care\
Act, signed into law by President Obama\
in 2010, set in motion a host of changes to\
the delivery of health care and health insurance\
coverage. Some of the changes already\
in place affect health savings accounts (discussed\
above in this Briefing). Other changes\
are scheduled to take effect after 2013.\
Individual Mandate And Penalty. Beginning\
in 2014, the Affordable Care Act\
imposes a penalty on individuals who do\
not carry minimum essential health coverage\
for one or more months, subject\
to certain exceptions. Married taxpayers\
who file a joint return are jointly liable\
for any penalty that may be imposed\
upon either spouse. The penalty does not\
apply in certain cases, such as in the case\
of individuals whose household incomes\
are below their filing thresholds. Now\
that DOMA has been struck down, samesex\
married couples presumably will be\
treated in the same manner as oppositesex\
married couples for purposes of the\
individual mandate and its penalty.\
COMMENT. The Affordable Care Act prohibits\
the IRS from using liens or levies to\
collect any unpaid penalty. The IRS cannot\
levy on the property of one spouse to satisfy\
an unpaid penalty of the other spouse.\
Premium Assistance Tax Credit. Beginning\
in 2014, the Code Sec. 36B premium assistance\
tax credit is scheduled to be available\
to those qualified individuals and families\
who are not offered minimum essential coverage\
and as a result obtain coverage through\
a health benefit exchange. The Affordable\
Care Act provides for advance payment of\
the credit. Taxpayers who are married at the\
end of the tax year must file a joint return\
to claim the credit. Because DOMA has\
been struck down, same-sex married couples\
will presumably need to file a joint return to\
claim the credit.\
Code Sec. 45R Credit. For tax years 2010\
through 2013, eligible employers may claim\
a credit of 35 percent of health insurance\
premiums paid (25 percent for small taxexempt\
employers). In tax years beginning\
after 2013, an employer must participate in\
an insurance exchange in order to claim the\
credit. The credit is scheduled to increase\
to 50 percent for small business employers\
(35 percent for small tax-exempt employers)\
after 2013 (but will terminate after 2015).\
Certain family members are not treated as\
employees for purposes of the credit. Under\
DOMA, these restrictions did not apply\
to same-sex married couples because their\
marriages were not recognized for federal\
purposes. With DOMA’s demise, a samesex\
spouse who satisfies any of these criteria\
would presumably not be treated as an employee\
for purposes of the credit.\
CCH Tax Briefing\
©2013 CCH Incorporated. All Rights Reserved.\
June 27, 2013\
9\
SOCIAL SECURITY BENEFITS\
Because of DOMA, same-sex married couples\
did not have the same benefits under\
Social Security that opposite-sex married\
couples have enjoyed for many years. Unlike\
opposite-sex couples, for example, there are\
no survivor benefits for the surviving spouse\
of a same-sex married couple. Also, the divorced\
spouse of a formerly married samesex\
couple cannot not claim benefits based\
on the earnings of his or her ex-spouse.\
IMPACT. The Social Security Administration\
(SSA) has based federal rights to\
benefits on whether marital rights exist\
in the couple’s current state of residence\
rather than the state in which they were\
married. The impact of Windsor on the\
manner in which federal agencies will\
treat Social Security benefits remains to\
be sorted out.\
Survivor Benefits. When an individual\
dies, his or her surviving spouse may be\
eligible for Social Security benefits if the\
surviving spouse is age 60 or older, age 50\
or older and disabled, or any age if he or\
she is caring for the decedent’s child who is\
younger than age 16 or disabled and entitled\
to Social Security benefits on the record\
of the deceased individual. With DOMA\
having been struck down, survivor benefits\
previously available only to opposite-sex\
married couples are now presumably available\
to same-sex married couples. The SSA\
is expected to provide guidance.\
Divorced Spouses. If an individual is divorced,\
his or her ex-spouse may qualify\
for Social Security benefits based on that\
individual’s earnings. Generally, a divorced\
spouse must have been married to the individual\
for at least 10 years and have been\
divorced at least two years. Additionally,\
the divorced spouse must be at least age\
62, unmarried and ineligible for an equal\
or greater benefit based on his or her own\
earnings or the earnings of someone else.\
These benefits are now presumably available\
to divorced individuals who were previously\
in a same-sex marriage. The SSA is expected\
to provide guidance.\
Death Benefits. The SSA pays a onetime\
death benefit of \$255 to the decedent’s\
surviving spouse in an opposite-sex\
marriage or minor child. The SSA will\
presumably now pay the one-time death\
benefit to the surviving spouse in a samesex\
marriage.\
EFFECTIVE-DATE ISSUES\
Determination of the effective date for applying\
the Supreme Court’s holding to federal\
tax law is not straightforward in all cases\
and will necessitate further guidance from\
the IRS. Same-sex married couples who\
were not considered married under federal\
law prior to the Supreme Court decision\
are presumably not just considered married\
starting on the date of the Supreme Court’s\
decision, June 26, 2013 but are considered\
married retroactively to the date of their\
marriage pursuant to state law. This retroactive\
effective date raises a number of immediate\
federal tax issues:\
Should same-sex couples now file\
amended returns claiming joint return\
status?\
Are same-sex couples now required to\
amend past-year returns for joint status\
even if they did better tax-wise overall\
by filing separately as unmarried individuals?\
Will the IRS consider the Supreme\
Court’s decision in determining marital\
status when auditing prior-year returns?\
Amended Joint Returns/Claims For Refund.\
Amended returns are filed to correct\
errors made on previous returns. Although\
the Internal Revenue Code does not specifically\
permit amended returns, the IRS usually\
accepts them. But while the IRS’s discretion\
to accept or reject amended returns\
has been recognized, courts have required\
the IRS to accept amended returns where\
its rejection of them has been found to be\
arbitrary and unjust.\
Limitations Period. The statute of limitations\
for amending or auditing a return is\
STATES THAT\
RECOGNIZE SAME-SEX\
MARRIAGE\
Connecticut\
Delaware(1)\
Iowa\
Maine\
Maryland\
Massachusetts\
Minnesota(2)\
New Hampshire\
New York\
Rhode Island(2)\
Vermont\
Washington\
District of Columbia\
\*As of June 27, 2013\
(1) Effective July 1, 2013\
(2) Effective August 1, 2013\
Note: California granted marriage licenses\
to same-sex couples from June\
16, 2008 to November 5, 2008.\
Note: The Little Traverse Bay Bands of\
Odawa Indians in Michigan, the Coquille\
Native American Nation in Oregon and\
the Suquamish Native American Nation in\
Washington recognize same-sex marriage.\
Note: 37 States have laws expressly\
restricting marriage to opposite-sex\
couples.\
STATES THAT\
RECOGNIZE SAME-SEX\
UNIONS/DOMESTIC\
PARTNERSHIPS\
California\
Colorado\
Hawaii\
Illinois\
Nevada\
New Jersey\
Oregon\
Wisconsin\
generally three years from the filing date or\
two years from the date taxes are paid, whichever\
is later. This rule may generally apply for\
same-sex married couples as follows:\
CCH Tax Briefing\
10\
2013 Expert Analysis\
Joint returns may be filed, usually as an\
amended return with a refund claim,\
until the three-year limitations period\
(or the two-year payment period, if\
later) expires. For individuals who filed\
2009 tax returns on or before April\
15, 2010, the limitations period for\
that year is closed. For those who filed\
their 2009 returns on an automatic sixmonth\
extension on October 15, 2010,\
however, the limitations period for the\
2009 tax year remains open until October\
15, 2013. To claim joint return\
status on an amended 2009 tax return\
under the three-year rule, both married\
partners’ original tax returns must have\
been filed within that extended period.\
Taxpayers who filed protective refund\
claims prior to the Supreme Court’s decision\
should be on the alert to any forthcoming\
IRS guidelines that may facilitate\
the agency’s processing of those claims.\
Taxpayers who had a lower combined\
overall tax liability filing as unmarried single\
individuals during an open year appear\
to be under no obligation now to file an\
amended return to file jointly (or as married\
filing separately if at least one partner\
does not consent to a joint return).\
IRS Audit Policy. Technically, the IRS, on\
audit of an open year for which any previously-filed\
return by a married, same-sex\
partner used unmarried, single-filer status,\
may be able to require that tax be recomputed\
based on either a joint return, or married\
filing separately status return. However,\
since audits are under IRS’s discretionary\
powers, the consensus among at least some\
practitioners, is that IRS National Office\
may –and more likely will— direct agents\
to by-pass any filing-status issues unless the\
taxpayer requests a change.\
2013 Tax Year. For 2013 returns that will be\
filed in 2014, the Supreme Court’s Windsor\
decision presumably relates back to the entire\
2013 tax year in determining filing status.\
COMMENT. Married partners do not have\
the option to file short-year returns as unmarried\
for the January 1 – June 26, 2013\
period; they must file jointly or married filing\
separately for the entire 2013 tax year.\
2012 Tax Year. Taxpayers who are on extension\
until October 15, 2013 for filing their\
2012 tax year returns appear to be required\
to file those returns either jointly or married\
filing separately. Taxpayers who filed their\
2012 tax year returns before June 26, 2013,\
as separate, unmarried individuals, however,\
may not need to change their filing status to\
married filing joint if it would be less favorable\
to their overall tax liability. The IRS\
may issue guidance on this issue.\
CCH Tax Briefing\
©2013 CCH Incorporated. All Rights Reserved.