DOMA Struck Down - Opening the Floodgates for Amended Tax Returns.
(Parker Tax Publishing: June 26, 2013)
On June 26, in yet another 5-4 decision, the Supreme Court struck down Section 3 of the Defense of Marriage Act. The decision in U.S. v. Windsor, 2013 PTC 167 (S. Ct. 6/26/13) has broad tax implications. In the short term, practitioners have an opportunity to begin filing amended returns to obtain income tax refunds for any same-sex clients who were married under state law but precluded from filing a joint federal income tax return. Similarly, for individuals who were in a situation similar to Edith Windsor, refund claims can now be filed for estate taxes paid on property inherited from a same-sex partner to whom the individual was married under state law. Additionally, tax-free employer provided benefits to domestic partners that were previously taxable under federal law are now tax free, so refunds can be claimed on this basis also. The Court’s decision allows married same-sex partners to receive federal benefits if their partner is a federal employee and same-sex partners will also be eligible for social security survivor benefits upon the death of a partner.
OBSERVATION: Under the statute of limitations, an individual generally has three years from the due date of the return (not including any extensions) to file an amended return and claim a refund of tax.
Defense of Marriage Act (DOMA)
The Defense of Marriage Act (DOMA), Pub. L. 104-199, was enacted in 1996. Section 3 of DOMA provides that, in determining the meaning of an Act of Congress, any ruling, regulation, or interpretation of the U.S. administrative bureaus and agencies, the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.
Facts of the Windsor Case
Edith Windsor and Thea Spyer, New York residents, were married in Canada in 2007. Because New York recognizes same-sex marriages, the couple was treated as married under state law and filed joint state income tax returns. When Thea died in 2009, she left her entire estate to Edith. Edith sought to claim the federal estate tax exemption for surviving spouses, but was barred from doing so by Section 3 of DOMA, which defined “marriage” and “spouse” as excluding same-sex partners. Edith paid over $363,000 in estate taxes and filed for a refund, which the IRS denied.
Edith brought a refund suit in a district court, contending that DOMA violated the principles of equal protection incorporated in the Fifth Amendment. While the suit was pending, the U.S. Attorney General notified the Speaker of the House of Representatives that the Department of Justice would no longer defend Section 3’s constitutionality. In response, the Bipartisan Legal Advisory Group (BLAG) of the House of Representatives voted to intervene in the litigation to defend Section 3’s constitutionality. The district court permitted the intervention. The district court ruled against the United States, finding Section 3 unconstitutional and ordering the IRS to refund Edith’s tax with interest. The Second Circuit affirmed that decision, but the IRS did not refund the tax and the case was appealed to the Supreme Court.
The majority of the Court’s justices held that Section 3 of DOMA is unconstitutional because it violates the Fifth Amendment.
The Court noted that, by history and tradition, the definition and regulation of marriage has been treated as being within the authority and realm of the separate states. However, the operation of Section 3 of DOMA, with a directive applicable to over 1,000 federal statues and the whole realm of federal regulations, was directed to a class of persons that the laws of New York and of 11 other states sought to protect, the Court said. The Court cited Loving v. Virginia, 388 U. S. 1 (1967), for the proposition that regulation of domestic relations is an area that has long been regarded as a virtually exclusive province of the states. The significance of state responsibilities for the definition and regulation of marriage, the Court noted, dates back to when the Constitution was adopted. Section 3 of DOMA, the majority stated, rejected this long-established precept. The Court found that a state’s decision to give same-sex persons the right to marry conferred upon them a dignity and status of immense import. But, the Court said, the federal government used this state-defined class for the opposite purpose – to impose restrictions and disabilities.
The question before the Court was whether the resulting injury and indignity was a deprivation of an essential part of the liberty protected by the Fifth Amendment. The Court concluded that, by seeking to injure the very class New York sought to protect, DOMA violated basic due process and equal protection principles applicable to the federal government. The Constitution’s guarantee of equality, the Court stated, “must at the very least mean that a bare congressional desire to harm a politically unpopular group cannot” justify disparate treatment of that group. The Court thus concluded that DOMA was unconstitutional; its unusual deviation from the tradition of recognizing and accepting state definitions of marriage operated, the Court said, to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages. According to the Court, this was strong evidence of a law having the purpose and effect of disapproval of a class recognized and protected by state law. DOMA’s avowed purpose and practical effect, the Court said, was to impose a disadvantage, a separate status, and so a stigma upon all who entered into same-sex marriages made lawful by the unquestioned authority of the states.
DOMA’s principal effect, the Court observed, was to identify and make unequal a subset of state-sanctioned marriages. It contrived to deprive some couples married under the laws of their state, but not others, of both rights and responsibilities, creating two contradictory marriage regimes within the same state. It also forced, the Court said, same-sex couples to live as married for the purpose of state law but unmarried for the purpose of federal law, thus diminishing the stability and predictability of basic personal relations the state had found it proper to acknowledge and protect.
OBSERVATION: While the law gives clarity to same-sex individuals in states that allow same-sex marriages, there are numerous issues remaining that will most likely be addressed by future litigation. For example, an employer who hires an individual, who is married to a same-sex partner in a state like New York, is required to treat the individual’s partner as their spouse for company benefit purposes. But it is unclear what might happen if the company transfers that employee to a corporate location where same-sex marriages aren’t recognized.
Staff Editor Parker Tax Publishing
Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.