In 1996, Congress passed the Defense of Marriage Act (“DOMA”). Until this year, DOMA did two significant things: it allowed states to refuse to recognize same-sex marriages performed in other states, and it prevented the federal government from recognizing same-sex marriages for any purpose. Any purpose included for tax purposes: for all federal income, gift, and estate tax purposes, same-sex spouses were treated as unrelated individuals.
In United States v. Windsor, the Supreme Court declared section 3 of DOMA—the part that forbade the federal government from recognizing same-sex marriages—unconstitutional. Among other things, that meant that, going forward, same-sex spouses would generally be required to file their tax returns as married, whether they choose to file jointly or separately, just lake opposite-sex spouses.
But the Court’s decision didn’t resolve all of the tax filing questions. Significantly, it didn’t say which same-sex spouses would be permitted(/required) to file as married persons.
Wait, you say, I thought married was married. And so it is. But not every state recognizes same-sex marriages. And not every same-sex couple stays in the same place. Let’s say, for example, that David and John marry in one of the five New Mexico counties that permit issue marriage licenses to same-sex couples. Shortly thereafter, they move to Oklahoma, which, by statute and constitution, refuses to recognize same-sex marriages from other states.
When David and John file their 2013 tax return, will they file as a married couple, or as unmarried individuals? Windsor didn’t address the question, and the Treasury Department and the IRS had at least two choices: they could look to the place of residence, or the place of ceremony. If they chose place of residence, John and David could not file as a married couple, because, where they reside, their marriage is not recognized. If Treasury and the IRS chose place of ceremony, on the other hand, John and David would file as married.
Today, the question has been resolved: the Treasury Department announced that it will look to place of ceremony. Any legally-married same-sex couple must file as married, irrespective of where they currently live. (This fits with the IRS’s long-standing policy of recognizing common law marriage, even if the couple moves to a state that doesn’t recognize their common-law marriage.)
Note that, although the question of filing status has now been resolved, it doesn’t mean that same-sex couples won’t encounter difficulties that their opposite-sex counterparts don’t face. In Oklahoma, John and David will still have to file separate returns for state purposes. And because in most states, state taxable income is determined by reference to federal taxable income, John and David will likely need to fill out dummy federal returns in order to calculate their state tax liability, which will require additional time, effort, and expense.
Still, looking to place of ceremony is the better of the two possible approaches. It is fairer and it won’t significantly distort couples’ choice of where to live. Moreover, it adds clarity to the law, and is a welcome determination.