As you know from our previous blog posts, Lefstein-Suchoff CPA & Associates makes it a priority to keep you informed and up to date on all tax changes. As a result of the U.S. Supreme Court’s decision, there may be significant tax changes.
The U.S. Supreme Court’s June 26 decision to strike down Section 3 of the Defense of Marriage Act (DOMA) has opened a host of tax planning opportunities – and challenges – for same-sex couples, employers, and others. In a 5 to 4 decision, the Supreme Court held that Section 3 of DOMA is unconstitutional as a deprivation of the equal protection of persons that is protected by the Fifth Amendment. On June 27, the IRS announced it will move swiftly to provide guidance on regulations and rules impacted by the Court’s decision.
The decision leaves much uncertainty for taxpayers and the IRS needs to issue formal guidance to help taxpayers and practitioners.
Background
After her sex-same spouse died, the widow sought to claim the estate tax exemption for surviving spouses. Section 3 of DOMA, which defines marriage for federal purposes as only a legal union between one man and one woman as husband and wife, barred her claim. The estate paid the estate taxes and the widow filed for a refund. A federal district court and the Court of Appeals for the Second Circuit both found unconstitutional Section 3 of DOMA. The Supreme Court granted certiorari and heard oral arguments in March 2013.
Court’s ruling
Writing for the majority, Justice Kennedy said that “regulation of domestic relations is an area that has long been regarded as a virtually exclusive province of the States. When the Constitution was adopted the common understanding was that the domestic relations of husband and wife and parent and child were matters reserved to the States. Marriage laws may vary from State to State, but they are consistent within each State.”
Kennedy explained that “DOMA’s principal effect is to identify a subset of state-sanctioned marriages and make them unequal. The principal purpose is to impose inequality.” Kennedy further noted that “by creating two contradictory marriage regimes within the same State, DOMA forces same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law. This places same-sex couples in an unstable position of being in a second-tier marriage.”
The dissent would have upheld DOMA. Justice Scalia, writing for the dissent, said that “DOMA avoids difficult choice-of-law issues that will now arise absent a uniform federal definition of marriage.” Scalia added that “DOMA preserves the intended effects of prior legislation against then-unforeseen changes in circumstance.”
IRS guidance
After the Supreme Court announced its decision, President Obama directed all federal agencies to revise their rules and regulations to reflect the Court’s ruling. The IRS posted an announcement on its website that it is working with the U.S. Departments of Treasury and Justice to swiftly provide revised guidance in the near future.
Among the many areas where the IRS is expected to provide guidance are:
· Filing status;
· IRAs;
· 401(k)s and other plans;
· American Opportunity Tax Credit;
· Child and dependent care credit;
· Estate tax marital exclusion;
· Estate tax portability;
· Health Savings Accounts;
· Adoption benefits;
· Family stock attribution rules;
· Innocent spouse rules;
· FICA payroll tax refunds; and
· Numerous provisions under the Patient Protection and Affordable Care Act.
For assistance with this or other tax or accounting matters please contact us at 201-947-8081 or 646-688-2807, or email us at info@bergencountycpa.com.