Important IRS Guidance on Same-Sex Marriage

September 2013

Earlier this summer we sent you an Alert concerning the U.S. Supreme Court’s historic ruling (United States v. Windsor) regarding same-sex marriage. This decision declared, as unconstitutional, Section 3 of the federal Defense of Marriage Act, which defined “spouses” and “marriage” for purposes of federal law as including only persons of the opposite sex. Thus, following the Windsor decision, same-sex spouses will now be recognized for purposes of federal law, including, among many others, federal tax law and the Employee Retirement Income Security Act (ERISA).

Windsor Left Many Open Questions

While the impact of the Supreme Court’s ruling on employee benefit plans and arrangements will be substantial, the Windsor decision, as we noted in our earlier Alert, left many questions unanswered with respect to its impact on such plans and arrangements. The two most fundamental questions are: (i) what state law controls in determining whether a same-sex marriage, and therefore such same-sex partners’ status as “spouses,” will be recognized in applying federal law post-Windsor, and (ii) does, and if so to what extent will, the Windsor decision have retroactive effect? While additional guidance is necessary and will be forthcoming from the various federal agencies having jurisdiction over the many federal laws impacted by marital and spousal status, the Internal Revenue Service and U.S. Treasury Department (collectively, “IRS”) have issued initial guidance on the subject and offered some answers to these and other important questions.

IRS Provides “State of Celebration” Standard

The key threshold question to be addressed by the federal agencies is what state law controls in determining an individual’s status as a same-sex spouse for purposes of the various rights and benefits available to spouses under federal law. On August 29, 2013, the IRS issued its initial round of same-sex marriage tax guidance (in the form of an informal announcement, revenue ruling (Revenue Ruling 2013-17), and frequently asked questions) which answered that threshold question for purposes of federal tax law by adopting a “state of celebration” rule, meaning that same-sex couples who are married in a U.S. state (including the District of Columbia and U.S. territories) or foreign country whose laws authorize same-sex marriages will be considered lawfully “married,” and as “spouses,” under federal tax law, even if they live in a state that does not recognize the validity of same-sex marriages. Thus, for instance, a same-sex couple that is validly married in New York, but who resides in Pennsylvania (where same-sex marriage is not currently recognized) will continue to be treated as married (and as spouses) for federal tax purposes.1

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