Today, the United States Treasury Department and the Internal Revenue Service issued a very significant and consequential ruling, Revenue Ruling 2013-17, addressing tax issues arising from the recent U.S. Supreme Court decision of U.S. v. Windsor, 133 S. Ct. 2675, issued on June 26, 2013.
For federal tax purposes, the IRS will now recognize all same-sex marriages validly entered into in any domestic or foreign jurisdiction sanctioning such marriages, regardless of the law of the individual’s domicile. This means, for example, a same-sex coupe married under New York law will be treated as married for federal tax purposes even if they are domiciled in Florida, a state that constitutionally bans the recognition of such marriages.
The IRS will interpret all gender neutral terms to include same-sex married individuals. For example, the term “spouse” will include an individual married to a person of the same sex in a jurisdiction sanctioning such marriages, and the term “marriage” will include same sex marriages entered into in a jurisdiction sanctioning such marriages. The IRS will also interpret gender specific terms, such as “husband” and “wife”, to include individuals married to a person of the same sex in a jurisdiction sanctioning such marriages.
The Ruling, however, does not recognize registered domestic partnerships, civil unions or other similar formal relationships as marriages.
The Ruling is applied prospectively as of September 16, 2013. Therefore, all lawfully married, same-sex taxpayers will need to file 2013 returns as married individuals (either jointly or as married filing separately).
Importantly, the Ruling may be relied upon for the purpose of filing amended returns and claims for refund, provided the applicable statute of limitations period has not expired. Generally, the statute of limitations on a claim for refund expires upon the later 3 years from the date the return was filed or 2 years from the date the tax was paid. Lawfully married, same-sex taxpayers should explore whether claims for refund should be filed for prior open tax years.
Only for the purpose of filing returns, the Ruling may be applied retroactively with respect to employer-provided health coverage benefits or fringe benefits. Therefore, an individual participant under a section 125 cafeteria plan (a plan where pre-tax money is used to pay for health coverage) who also elected to provide health coverage for a same-sex spouse on an after-tax basis under the employer’s group health plan, can now treat amounts paid for health coverage on an after tax basis as pre-tax salary reduction amounts.
The IRS specifically stated that it intends to issue further guidance on the retroactive application of the Windsor decision to other employee benefits.
This Ruling brings some welcome certainty and clarity to these tax issues after the Windsor decision, but there are still many unanswered questions. Please stay tuned to our blog for further information and analysis regarding this landmark case and tax guidance.