October 2, 2013
The IRS has now issued guidance on how it will construe the Windsor opinion. The guidance is found in Revenue Ruling 2013-17.
The ruling begins by recognizing that Windsor applies broadly to all issues of federal tax law. "In light of the Windsor decision . . . the Service also concludes that the terms 'husband and wife,' 'husband,' and 'wife' should be interpreted to include same-sex spouses" for purposes of federal income tax law." Rev. Rul. 2013-17 at 4.
The ruling then relies heavily upon Rev. Rul. 58-66, cited previously in this article, which held that the IRS will recognize common-law marriages which were valid in the state in which
they were formed. The IRS will apply the same rule to same-sex marriages:
The Service has applied this rule with respect to common-law marriages for over 50 years, despite the refusal of some states to give full faith and credit to common-law marriages established in other states. Although states have different rules of marriage recognition, uniform nationwide rules are essential for efficient and fair tax administration. A rule under which a couple's marital status could change simply by moving from one state to another state would be prohibitively difficult and costly for the Service to administer, and for many taxpayers to apply.
Id. at 3.
Consistent with the longstanding position expressed in Revenue Ruling 58-66, the Service has determined to interpret the Code as incorporating a general rule, for Federal tax purposes, that recognizes the validity of a same-sex marriage that was valid in the state where it was entered into, regardless of the married couple's place of domicile. The Service may provide additional guidance on this subject and on the application of Windsor with respect to Federal tax administration.
Id. at 9.
Under this rule, individuals of the same sex will be considered to be lawfully married under the Code as long as they were married in a state whose laws authorize the marriage of two individuals of the same sex, even if they are domiciled in a state that does not recognize the validity of same-sex marriages.
Id. at 10 (emphasis added).
Thus, even if the taxpayers are domiciled in a state which adamantly refuses to recognize same-sex marriages, they can spend a weekend in a state which does recognize such marriages, obtain a marriage license, and have a marriage which the IRS will recognize as valid
for federal tax purposes.
The IRS cautioned, however, that a civil union is not a marriage. "For Federal tax purposes, the term 'marriage' does not include registered domestic partnerships, civil unions, or other similar formal relationships recognized under state law that are not denominated as a marriage under that state's law." Id. at 13.
The new ruling expressly applies retroactively. "[A]ffected taxpayers also may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns, or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations period for filing such claim under section 6511 has not expired." Id. at 13. I.R.C. § 6511(a) provides:
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3
years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.
I.R.C. § 6511(a) (emphasis added).
Three observations are worth making. First, the IRS cites no authority to support its claim that states generally refused to give full faith and credit to common law marriages from other
states. Such refusals were rare, and generally based upon failure to meet the elements of common law marriage, or in some cases upon a lack of sufficient time spent residing in the state which recognized common law marriage. The state law public policy objections against same sex marriage are many times stronger than the state law public policy objections to common law marriage have ever been. This is the weakest part of the IRS's reasoning.
Second, the real core of the IRS's reasoning is its concern that looking to any place other than the state of celebration will be administratively difficult. This is the strongest part of the IRS's reasoning. The cost of administering federal tax would be much greater under any other rule.
Third, the retroactivity provision is significant. Parties to same-sex marriages should consult with tax professionals as to whether filing amended returns for the past two to three years is advisable. There is good reason to suspect that many such returns will be filed. A significant side benefit of Windsor may be several years of full employment in the tax return preparation industry.