Supreme Court's decision in Windsor will have far-reaching implications for the tax planning of same-sex couples but many issues remain unclear.
Here are some Excerpts from an article that explores the complications, current opportunities, and possible expanded future tax opportunities in preparing tax plans for same-sex married couples after the recent Supreme Court decisions in Windsor, 111 AFTR2d 2013-2385 (2013), and Hollingsworth v. Perry, 2013 WL 3196927 (2013). Prior to these latest decisions, same-sex couples could not rely on many of the rights and privileges available under federal law. (R. W. Easton, 91 Practical Tax Strategies 110 (September 2013).)
“The Supreme Court's decision in Windsor will have far-reaching implications for the tax planning of same-sex couples” but many issues remain unclear.
“Windsor has many potential tax impacts, from the opportunity to file amended income and estate tax returns for same-sex couples to beneficiary designations on IRAs and qualified plans. “
“Because the decision is unclear as to its retroactive effect or its impact on same-sex couples in state-sanctioned domestic partnerships or civil unions, it is suggested that all same-sex couples file amended returns or protective refund claims in case these issues are resolved favorably in the future.”
“ Windsor's unanswered questions present many necessary protective income tax planning possibilities. These questions include:
The following states and the District of Columbia recognize same-sex marriage; the dates that they first recognized such unions may prove significant for purposes of filing state as well as federal amended returns.
Hollingsworth decision on Proposition 8).
It is unresolved what effect Windsor will have on states that have domestic partnerships and civil unions. Arrangements such as those do not come under the “lawful marriages” terminology, and as such, the IRS will most likely treat them differently.
Windsor has many potential tax impacts, from the opportunity to file amended income and estate tax returns for same-sex couples to beneficiary designations on IRAs and qualified plans.
It is also unclear if the federal government will recognize same-sex couples as married if they are married in a jurisdiction allowing same-sex marriages, but are domiciled in a state that does not allow same-sex marriages and does not recognize a same-sex marriage performed in another state or jurisdiction. What if a couple was married and resided in a state allowing same-sex marriages, and later moves to a state that does not recognize same-sex marriages?
Because the decision is unclear as to its retroactive effect or its impact on same-sex couples in state-sanctioned domestic partnerships or civil unions, it is suggested that all same-sex couples file amended returns or protective refund claims in case these issues are resolved favorably in the future.
By overruling DOMA, the Court made significant tax-savings available to all surviving same-sex spouses whose marriages are recognized at the state level. It also enables same-sex couples to use important estate planning techniques, such as qualified disclaimers and various marital trusts.
Given that most states have not approved same-sex marriage, same-sex couples will continue to have to travel to states that have legalized same-sex marriage in order to marry—and to divorce as well. Further, to continue to receive preferential state tax treatment, legally married same-sex couples will have to live in states that have legalized marriage. However, given the decisions of the Supreme Court, the future looks bright for same sex couples, and the number of states within which they can choose to marry, divorce, and live will grow over the next few years.
The ramifications of this decision are immense and will be decided in the months and years ahead. The opinion is very broad and will affect the application of approximately 1,000 federal statutes, including Social Security and military benefits. The demise of DOMA will also have far-reaching implications in other areas, such as health care, labor law, immigration and family law.
Author: REED W. EASTON
REED W. EASTON, LL.M., CPA, is an associate professor in the Department of Accounting and Taxation at Seton Hall University in South Orange, New Jersey.
Federal Editorial Materials
Practical Tax Strategies/Taxation for Accountants (WG&L)
Practical Tax Strategies
Volume 91, Number 03, September 2013
TAX PLANNING OPPORTUNITIES FOR NONTRADITIONAL FAMILIES AFTER WINDSOR, Practical Tax Strategies, Sep 2013