On Aug. 29, 2013, the Internal Revenue Service issued a Revenue Ruling answering many questions raised by the Supreme Court’s ruling in United States v. Windsor earlier this summer. In Windsor, the court held that Section 3 of the Defense of Marriage Act, which defined marriage as a union between a man and a woman for federal law purposes, was unconstitutional because it denied same-sex couples equal protection under the law. The IRS’s first formal response to the Windsor decision holds that for all federal tax purposes:
1. The term “marriage” includes a marriage between two individuals of the same sex, provided those individuals are lawfully married under state law (or the laws of a territory or foreign jurisdiction with the legal authority to sanction marriage);
2. A same-sex marriage sanctioned under the laws of the state or territory in which it was performed will be recognized, even if the married couple lives in a state that does not recognize same-sex marriage;
3. A same-sex (or opposite-sex) couple is not considered married by virtue of entering into a registered domestic partnership, civil union or other similar formal relationship recognized under state law (but not classified as a marriage under the laws of that state).
These general principles will apply for all tax purposes, including income, employment and estate taxes, on a prospective basis as of Sept. 16, 2013. The Revenue Ruling also permits affected same-sex couples to rely on its holdings with respect to original, amended, and adjusted tax returns (and claims for credits or refunds) for tax years still falling within the IRS’s statute of limitations (generally, 2010, 2011 and 2012).
In a set of Frequently Asked Questions released contemporaneously with the Revenue Ruling, the IRS explicitly provides that qualified retirement plans “must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans.” The FAQs specifically emphasize that this is the case even if the plan is operated by a nonprofit organization in a state that does not recognize same-sex marriage.
Beginning Sept. 16, 2013, plan sponsors must treat the same-sex spouse of any plan participant as that participant’s spouse for all purposes under the plan. The new rule impacts, among other things, surviving spouse beneficiary provisions, qualified joint and survivor annuity and qualified pre-retirement survivor annuity requirements, required minimum distributions, hardship withdrawal rules and qualified domestic relations orders.
The IRS acknowledges that Revenue Ruling 2013-17 does not address the application of the Windsor decision to periods before Sept. 16 and states that it expects to issue future guidance for this purpose. This guidance also will include instructions to plan sponsors regarding required plan amendments and any necessary corrections relating to past plan operations.
The forthcoming employee plan guidance should also address health plans. The existing guidance, however, provides direction for plan sponsors who currently offer health coverage to same-sex couples.
Read the full article here. This article is part of the TRENDS 2014 Annual Legal Review, sponsored by Venable.