Treasury Department and IRS Issue Post-Windsor Guidance

September 12, 2013

By now, most of you are probably aware of the U.S. Supreme Court’s decision in United States v. Windsor.  In its decision, the Court determined that Section 3 of the Defense of Marriage Act (“DOMA”) is unconstitutional.  DOMA, in pertinent part, defined “marriage” as the legal union between a man and a woman.  Further, DOMA defined the term “spouse” to mean a person of the opposite sex who is a husband or wife.  While the substantive issue at hand in the Windsor case did not involve employee benefits, the decision raises a multitude of issues for plan sponsors.

Prior to DOMA, the determination of whether a marriage existed, for employee benefit plan purposes, was left to state law.  DOMA’s definition of “marriage” and “spouse” represented a shift away from state law and imposed a new federal standard for employee benefit plans.

The Court’s decision represents a return to state law interpretation.  As of today, thirteen states and the District of Columbia recognize same sex-marriages.

In response to the Windsor decision, the Treasury Department and Internal Revenue Service (“IRS”) have now issued Revenue Ruling 2013-17.  The Revenue Ruling addresses three specific issues, as follows:

Q 1: Whether, for federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include any individual married to a person of the same sex if they are lawfully married under state law, and whether the term “marriage” includes a same sex marriage.

A 1: Yes.  The ruling concludes that the terms “spouse,” “husband and wife,” “husband,” and “wife” do include an individual married to a person of the same sex if they are lawfully married under state law, and the term “marriage” includes such a marriage.

Q 2: Whether, for federal tax purposes, the IRS recognizes a marriage of same-sex individuals validly entered into in a state that recognizes same-sex marriage even if the state in which the individuals reside does not.

A 2: Yes. The ruling concludes that the IRS adopts a general rule recognizing a same-sex marriage of individuals that was validly entered into in a state that authorizes such a marriage, even if the individuals reside in a state that does not recognize such marriages. 

 Q 3: Whether, for federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include individuals who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage, and whether, for federal tax purposes, the term “marriage” includes such relationships.

A 3: No.  Registered domestic partnerships, civil unions, or other similar formal relationships recognized under state law, but that are not denominated as a marriage under the state law, are not “marriages” for federal tax purposes. 

The ruling also provides some guidance on the ability of individuals in a same-sex marriage to file amended tax returns if they received imputed income in connection with the receipt of health care benefits in prior years.

More guidance is expected in this area, and future Alerts addressing these issues will be posted as new guidance and best practice models are developed.

In the meantime, plan sponsors and administrators should be reviewing their documents and administrative procedures to address the various issues raised by the Windsor decision and the new Treasury/IRS ruling, including, but not limited to:

Definition of Spouse – the term “spouse” may be defined in both defined benefit and defined contribution plans, as well as in health and welfare plans.  Plan sponsors should review all plan documents to determine whether any changes are needed.

Retirement Plan Administration – many areas in the retirement world need to be considered, including:  beneficiary designations, QDRO administration, QJSA and QPSA applicability, spousal consent rules, minimum required distribution rules, rollovers, and hardship distribution rules.

Health and Welfare Plans – plan sponsors need to consider the impact of the Court’s decision and subsequent guidance on its same-sex domestic partner benefit programs (including the applicable taxation), reimbursement rules for flexible spending accounts, health savings accounts, and health reimbursement arrangements, as well as COBRA, FMLA, and HIPAA.