Supreme Court Strikes Down the Defense of Marriage Act, Bringing Sweeping Changes to Tax LawsJune 2013 – Advisories
On June 26, 2013, the Supreme Court held section three of the Defense of Marriage Act ("DOMA") unconstitutional1. This means that legal same-sex marriages are no longer distinguished from opposite-sex marriages under federal law. We at Goulston & Storrs are especially gratified by this result after having worked for many years in the fight for marriage equality. Goulston & Storrs served as pro bono counsel to MassEquality, the organization formed to protect the Massachusetts Supreme Judicial Court’s first in the nation decision recognizing same-sex marriage from the threat of legislative reversal. MassEquality recognized our contribution by awarding the firm MassEquality’s achievement award. Goulston & Storrs was also the first major law firm to sign on to the amicus brief filed in the First Circuit review of the challenge to DOMA submitted on behalf of 278 national employers and organizations. That brief formed the basis for the business community amicus brief filed with the US Supreme Court, and the firm proudly joined in that Supreme Court amicus brief.
The ruling has significant implications for tax laws as applied to same-sex spouses married and residing in jurisdictions that recognize same sex marriage, such as Massachusetts, New York and Washington, D.C. Those residing in other jurisdictions should seek the advice of local counsel to determine whether the Windsor decision may have tax or other implications.
In particular, immediate changes include:
- All spouses will now be able to file joint federal income tax returns and combine deductions.
- The value of health benefits provided to any spouse by an employer will not be subject to U.S. federal income tax.
- All spouses may qualify for spousal survivor benefits under Social Security.
- Retirement funds may be set aside in an individual retirement account on a pre-tax basis for all non-working spouses. All spouses will receive the preferential treatment under the laws accorded to spouses, including the spousal rollover of an IRA at death.
- The federal unlimited marital deduction allowing a spouse to leave his or her entire estate to a surviving spouse on an estate tax deferred basis applies to all spouses.
- All spouses may now make unlimited gifts to each other free of gift tax. All spouses may also split gifts made to third parties such that one spouse may make gifts and have the gifts treated for gift tax purposes as coming in equal parts from both spouses.
- Fringe benefits provided by an employer to an employee’s spouse will not generate taxable income to the employee.
- All spouses will automatically become the beneficiary of an employee spouse under qualified retirement plans unless the employee spouse takes action after June 26, 2013 to name a different beneficiary and the spouse consents to the change of beneficiary.
- All spouses will have access to the Medicare, Medicaid and veterans’ benefits available to a surviving spouse.
- Any spouse can now transfer property to his or her spouse (or a former spouse) incident to a divorce without recognizing gain or loss.
The Court's decision is limited to marriages that have been recognized under state law. It does not strike down the portion of DOMA that permits states to refuse to recognize same-sex marriages, nor does it address any individual state's definition of marriage.
The impact of the Windsor decision extends to 1,000 federal laws, and will affect employment law, immigration law, and federal loans, among a host of other policies and programs. Given the breadth of the Windsor decision, you may wish to consult with your tax and estate planning advisors to determine whether any changes should be made or actions taken to meet your planning objectives.
1United States v. Windsor, Executor of the Estate of Spyer, et al, No. 12-307, slip op. (U.S. June 26, 2013). Windsor was decided by a 5 to 4 vote, with Justices Roberts, Scalia, Thomas and Alito dissenting.
Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.
This advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.
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