Final Regulations Implement Supreme Court’s Same-Sex Marriage Decision for Federal Tax Purposes

Rules Clarify and Update Prior Guidance

The Internal Revenue Service (IRS) recently issued final regulations providing (among other things) that a marriage of two individuals is generally recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile.

Background 
Last year, proposed rules were issued to implement the Supreme Court’s 2015 decision in Obergefell v. Hodges. Specifically, the proposed regulations:

  • Interpreted the terms “husband” and “wife” to include same-sex spouses as well as opposite-sex spouses.
  • Clarified and strengthened previous IRS guidancefrom 2013, which implemented the Supreme Court’s 2013 decision in United States v. Windsor and provided that same-sex couples legally married in jurisdictions that authorize same-sex marriage will be treated as married for federal tax purposes. The proposed rules reflect that same-sex couples can now marry in all states and that all states will recognize these marriages.

Final rules were issued in September 2016.

Final Rules 
Highlights of the final rules include the following:

  • For federal tax purposes, the terms spousehusband, and wife mean an individual lawfully married to another individual. The term “husband and wife” means two individuals lawfully married to each other.
  • Persons who are lawfully married for federal tax purposes.Except as provided below (regarding marriages entered into under the laws of a foreign jurisdiction), a marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile.
  • Foreign marriages.Two individuals who enter into a relationship denominated as marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States, regardless of domicile.
  • Persons who are not lawfully married for federal tax purposes. The terms spousehusband, and wife do notinclude individuals who have entered into a registered domestic partnershipcivil union, or other similar formal relationship not denominated as a marriage under the law of the state, possession, or territory of the United States where such relationship was entered into, regardless of domicile. The term “husband and wife” does notinclude couples who have entered into such a formal relationship, and the term marriage does not include such formal relationships.

 

Effect on Prior Guidance
These final regulations make Revenue Ruling 2013–17 obsolete as of September 2, 2016. However, taxpayers may continue to rely on guidance related to the application of Revenue Ruling 2013–17 to employee benefit plans and the benefits provided under such plans, including Notice 2013–61 (establishing special procedures for correcting overpayments with respect to employee benefits provided to same-sex spouses), Notice 2014–37 (addressing mid-year amendments to certain “safe harbor” qualified retirement plans), Notice 2014–19 (application of the Windsordecision to qualified retirement plans), Notice 2014–1 (regarding the participation by same-sex spouses in cafeteria plans, HSAs, and health FSAs), and Notice 2015–86 (application of Obergefell to qualified retirement plans and health and welfare plans) to the extent they are not modified, superseded, obsoleted, or clarified by subsequent guidance.

The final rules apply to taxable years ending on or after September 2, 2016. Employers with questions on how to proceed regarding the administration of employee benefits for same-sex couples (or other applicable employment laws) are advised to review the final rules in their entirety and contact a knowledgeable employment law attorney.

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