The IRS recently issued Notice 2017-15 to provide same-sex spouses relief to recalculate the federal estate, gift and generation-skipping transfer (GST) tax treatment of gifts and bequests made before the Defense of Marriage Act (DOMA) was deemed unconstitutional.
DOMA defined “marriage” and “spouse” to the exclusion of same-sex couples for purposes of federal law, including federal transfer tax laws. As a result, taxpayers in same-sex marriages were not treated as married for purposes of federal estate, gift and GST taxes, and they could not claim a marital deduction for gifts or bequests made to each other. Instead, same-sex spouses were required to allocate limited exclusion amounts to (or pay gift or estate taxes on) gifts and bequests to each other.
In 2013, this changed. The U.S. Supreme Court held in the Windsor case that DOMA was unconstitutional, and the IRS issued Rev. Ruling 2013-17 to provide that for federal tax purposes, “marriage” and “spouse” would include same-sex couples lawfully married under state law. Unfortunately, Rev. Ruling 2013-17 applied only prospectively, leaving same-sex spouses who made prior gifts or bequests to each other without clear relief.
Notice 2017-15 provides the relief long hoped for by such same-sex spouses and their tax advisers. Notice 2017-15 provides administrative procedures to allow taxpayers in same-sex marriages (or, if the taxpayer is deceased, the executor of his or her estate) to recalculate the transfer tax treatment of prior gifts or bequests made to each other. Such recalculations can be provided on a Form 709 (i.e., a federal gift tax return), an amended Form 709 (if the limitations period to file the amended Form 709 has not expired) or a Form 706 (i.e., a federal estate tax return). Regardless of the form used, the taxpayer should include a statement at the top of the form stating “FILED PURSUANT TO NOTICE 2017-15” and attach a statement supporting the recalculation of the taxpayer’s remaining applicable exclusion amount for purposes of federal estate and gift taxes and/or the taxpayer’s remaining GST exemption for purposes of federal GST taxes.