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IRS Proposed Rules Would Include Same-Sex Spouses in Terms Related to Marital Status
Practical Law Legal Update w-000-7120 (Approx. 6 pages)
IRS Proposed Rules Would Include Same-Sex Spouses in Terms Related to Marital Status
by Practical Law Employee Benefits & Executive Compensation
| Published on 28 Oct 2015 • USA (National/Federal) |
The Internal Revenue Service (IRS) has issued proposed regulations that would amend existing regulations to provide that, for federal tax purposes, terms indicating sex (for example, "husband" or "wife") are interpreted in a neutral way to include same-sex and opposite-sex spouses. The changes would not apply to individuals in domestic partnerships or similar relationships.
On October 21, 2015, the Internal Revenue Service (IRS) issued proposed regulations that would amend existing regulations to provide that, for federal tax purposes, terms indicating sex (for example, "husband" or "wife") are interpreted in a neutral way to include same-sex and opposite-sex spouses. The proposed regulations would reflect the Supreme Court's same-sex marriage rulings (80 Fed. Reg. 64378).
The proposed regulations would:
- Generally apply to tax years ending on or after the date that the regulations are published in final form in the Federal Register.
For now, however, the IRS's guidance in Notices 2013-61, 2014-1, 2014-19, and 2014-37 may still be relied upon. For more information on this guidance, see Legal Updates, Post-Windsor IRS Guidance Includes Streamlined Employment Tax Correction Procedures (regarding Notice 2013-61), IRS Windsor Guidance Addresses Cafeteria Plans, FSAs and HSAs (regarding Notice 2014-1), IRS Provides Guidance on the Application of Windsor and Revenue Ruling 2013-17 to Qualified Retirement Plans (regarding Notice 2014-19), and Safe Harbor 401(k) Plans May Adopt Mid-year Amendments to Comply with US v. Windsor Decision (regarding Notice 2014-37).
Background
In June 2013, in United States v. Windsor, the Supreme Court held that Section 3 of the Defense of Marriage Act (DOMA), which defined the terms "spouse" and "marriage" for purposes of federal law (including the Internal Revenue Code (Code)) as being solely between one man and one woman, was unconstitutional (see Legal Update, Supreme Court: DOMA Section 3 is Unconstitutional and Proposition 8 Proponents Lack Standing) ( (June 26, 2013)). After Windsor, the IRS issued Revenue Ruling 2013-17, which provided that, for federal income tax purposes, the IRS would recognize a same-sex marriage that was valid in the state where it was entered into regardless of the married couple's place of domicile (see Legal Update, IRS Adopts Same-sex Marriage Recognition Rule). The IRS also issued a series of Windsor-related guidance after Revenue Ruling 2013-17.
In June 2015, in Obergefell v. Hodges, the Supreme Court held that:
- Same-sex couples may exercise the right to marry in all states.
- A state may not refuse to recognize a lawful same-sex marriage performed in another state based on its same-sex character.
For resources to assist retirement plans in complying with the recent same-sex marriage developments, see Same-Sex Marriage Developments for Retirement Plans Toolkit.
Proposed Regulations
Under the proposed regulations, the IRS would treat marriages of same-sex couples the same as marriages of opposite-sex couples for federal tax purposes. The IRS would interpret terms indicating sex (for example, "husband," "wife," and "husband and wife") in a neutral way to include both same-sex and opposite-sex spouses. Specifically, the proposed regulations would amend existing regulations under Code Section 7701 (26 U.S.C. § 7701) to provide that, regardless of sex, the terms:
- "Spouse," "husband" and "wife" mean an individual lawfully married to another individual.
- "Husband and wife" means two individuals lawfully married to one another.
Under the proposed regulations, a marriage would be recognized for federal tax purposes if it would be recognized by any US state, possession, or territory. A marriage conducted in a foreign jurisdiction would be recognized for federal tax purposes if it would be recognized in at least one US state, possession, or territory.
Domestic Partnerships, Civil Unions, and Similar Relationships
Under the proposed regulations, for federal tax purposes, the term marriage would not include registered domestic partnerships, civil unions, or other similar relationships that are:
- Recognized under state law.
- Not denominated as marriage under the state's law.
Additionally, the terms "spouse," "husband and wife," "husband" and "wife" would not include individuals who have entered into one of these relationships.
In introductory material accompanying the proposed regulations, the IRS notes that some couples:
- May have entered into civil unions or domestic partnerships with the expectation that those relationships would not be treated as a marriage for federal law purposes.
- Deliberately declined to convert those relationships into a marriage.
According to the IRS, for example, some individuals who were previously married and receive Social Security benefits as a result of their previous marriage may have chosen a civil union or domestic partnership instead of marriage to avoid losing their Social Security benefits. In addition, some couples' income tax rate may increase if they are considered married and required to file a married-filing-separately or married-filing-jointly federal income tax return.
Practical Impact
The proposed regulations, which stop short of treating domestic partnerships and similar relationships as marriage for federal tax purposes, reflect ongoing questions about the future of domestic partner benefits. Now that marriage is available to both same-sex and opposite-sex couples, some employers may no longer see the need to offer same-sex domestic partner and civil union benefits which, in many cases, were added before marriage was available to same-sex couples.