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August 2, 2015

Some Tax Implications of Same Sex Marriage

By now, the U.S. Supreme Court’s decision in Obergefell v. Hodges holding that the Fourteenth Amendment requires all states to license a marriage between two people of the same sex has been widely reported upon, including in the PK Law newsletter.  However, the opinion of the Court raises some interesting and thorny tax issues which we wish to call to our readers’ attention.

The Internal Revenue Service issued Revenue Ruling 2013-17, 2013-38 Internal Revenue Bulletin 201, which stated that a same-sex couple legally married in a domestic or foreign jurisdiction would be treated as married for federal tax purposes, regardless of where they currently live, and must file as married couples for federal income tax purposes.  Thereafter, many states required same-sex couples married in other states to file separate state income tax returns, even if their filing status was married filing jointly for federal income tax purposes.

The Obergefell decision results in those in a same-sex marriage being considered married for state and federal return purposes, eliminating the dichotomy between state and federal filings.  However, those couples in a “domestic partnership” or “civil union” (“marriage substitutes”) under state law apparently cannot file a joint federal return but may be able to file a joint state return.

In any event, couples in marriage substitute types of relationships will now have to consider the social and tax advantages of becoming married.  They will need to bear in mind that with marriage comes divorce and all of the state and federal rules which come into play regarding division of property and payment of spousal and child support.

Same-sex couples who were married in states that allowed marriage but subsequently moved to states that didn’t recognize same-sex marriages are now married for state income tax purposes.  Those couples should consider amending state returns for those years available for amendment and examine the following points:

  • Will amendment result in lower taxation?
  • Should the couple itemize deductions or claim the standard deduction as married filing jointly?
  • What tax credits might the combined income of the couple make them eligible or ineligible for?

In states that impose estate and gift taxes (or inheritance taxes), a thorough estate planning review should be conducted to determine if it is advantageous to utilize rules regarding spousal transfers as part of an individual’s or couple’s estate plan.

Finally, Justice Roberts, in his dissenting opinion in Obergefell, raised the point of whether those religious charitable organizations which follow policies which conflict with same sex marriage would continue to receive status as “charitable organizations” under tax law.  Bob Jones University lost a similar such case in the U.S. Supreme Court.  Would the same be true under the current decision?  As of when would such an exemption be lost?  As Justice Roberts points out, many such questions remain to be answered as to such organizations and their policies.

PK Law’s Wealth Preservation and Tax attorneys stand ready to answer questions regarding the tax implications of same sex marriage.  Should you require guidance in that area, do not hesitate to contact a PK Law attorney.

To contact an attorney in PK Law’s Same Sex/LGBT Practice click here.

 

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.