In response to the U.S. Supreme Court decisions on same-sex marriage in Obergefell v. Hodges and Windsor v. United States, the IRS has issued proposed regulations (Prop. Reg. §301.7701-18) that define an individual’s marital status for federal tax and employment purposes, including income, estate, gift, and generation skipping transfer tax purposes. The proposed regulations provide that for federal tax purposes, the terms spouse, husband, and wife mean an individual lawfully married to another individual, and that the term husband and wife means two individuals lawfully married to each other. These definitions apply regardless of sex and therefore treat all married couples (regardless of sex) equally for purposes of administering federal law. The proposed regulations also state that a marriage of two individuals is recognized for federal tax purposes if the marriage would be recognized by any state, possession, or territory of the United States.
Alternatively, the proposed regulations state that for federal tax purposes, the terms spouse, husband, and wife do not include individuals who have entered into a registered domestic partnership, civil union, or other similar relationship not denominated as a marriage under the law of a state, possession, or territory of the United States. The term husband and wife does not include couples who have entered into such a relationship, and the term marriage does not include such relationships.
Prior to the decisions in Obergefell and Windsor, the Federal Defense of Marriage Act (commonly referred to as “DOMA”) defined marriage for federal law purposes as the legal union between one man and one woman as husband and wife, and further defined the term “spouse” as a person of the opposite sex who is a husband or wife. The Windsor court held that DOMA’s definition of marriage was unconstitutional and the Obergefell decision struck down bans on same-sex marriage imposed by individual states. The federal tax implications of these historic decisions are significant and the proposed regulations are the treasury department’s first attempt at providing some clarity to these federal tax issues.
Although the proposed regulations provide guidance on the treatment of same-sex couples for federal tax purposes, many questions remain unanswered for same-sex couples in those states, such as Florida, where bans on same-sex marriages were struck down by the Obergefell decision. Although Florida does not have its own state income tax issues to resolve with respect to same-sex marriage, there are a number of state laws relating to divorce or property rights, including homestead, to name a few, which will be affected. The Florida legislature must now re-define marriage for Florida state law purposes and be prepared to resolve many state law issues which will certainly arise as a result of Obergefell and Windsor.