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August 29, 2013

IRS provides guidance for recognition of same-sex marriages

IRS recently ruled (Rev. Rul. 2013-17) that all legal same-sex marriages will be recognized for Federal Tax purposes.  This applies to all taxes including: income, gift and estate taxes.  That would include qualified retirement plans and other employee benefits.  The determination is based on the status under the laws of the state where the marriage was established.  This is the rule even if the state of their domicile does not recognize the marriage.

 The ruling does not apply to registered domestic partnerships, civil unions or similar relationships recognized under state law that are not denominated as marriages.  Currently Illinois has authorized civil unions but does not denominate them as marriages.  Individuals that have had a civil union in Illinois are not considered married for Federal tax purposes.

The ruling was triggered by the recent decision of the Supreme Court in “United States v. Windsor”.  That case ruled that a portion of the “Defense of Marriage Act “ (DOMA) relating to the definition of “marriage’ was unconstitutional.  

Following are excerpts from the ruling:

“There are more than two hundred  Code provisions and Treasury regulations relating to the internal revenue laws that include the terms ‘spouse’, ‘marriage’ …” husband and/or wife.  “The Service concludes that gender-neutral terms in the Code that refer to marital status, such as ‘spouse’ and ‘marriage, ‘include, respectively, (1) an individual married to a person of the same sex if the couple is lawfully married under state law, and (2) such a marriage between “individuals of the same sex.”

“Given our increasingly mobile society, it is important to have a uniform rule of recognition that can be applied with certainty by the Service and taxpayers alike for all Federal tax purposes. Those overriding tax administration policy goals generally apply with equal force in the context of same-sex marriages.”

“For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.”

“Except as provided below, affected taxpayers also may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns, or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations period for filing such claim under section 6511 has not expired. If an affected taxpayer files an original return, amended return, adjusted return, or claim for credit or refund in reliance on this revenue ruling, all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status reported on the return or claim.”

Taxpayers may rely (subject to the conditions in the preceding paragraph regarding the applicable limitations period and consistency within the return or claim) on this revenue ruling retroactively with respect to any employee benefit plan or arrangement or any benefit provided there under only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income under sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status. For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reduction amounts.”

 IRS recognizes marriaged based on state of the ceremony
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