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The Supreme Court, in a 5-4 decision delivered by Justice Kennedy, has held, in a case involving four state-wide bans on same-sex marriage, that the Fourteenth Amendment requires a State to license a marriage between two people of the same sex. And, since same-sex couples may now exercise the fundamental right to marry in all States, there is no lawful basis for a State to refuse to recognize a lawful same-sex marriage performed in another State. Although the decision made only passing reference to tax implications, the wide-reaching social, political, and economic ramifications inherent in this decision include a number of significant tax issues.

Background. Same-sex marriage became an increasingly prominent issue in the U.S. after the Hawaii Supreme Court held in ’93 that the state’s ban on same-sex marriage was unconstitutional. In ’96, Congress enacted, and President Clinton signed into law, the Defense of Marriage Act (DOMA). Section 3 of DOMA defined marriage for purposes of administering Federal law 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.” DOMA’s legislative history indicated that it came about largely in reaction to the possibility that states would begin to legally recognize same-sex marriage. In 2013, in a 5-4 opinion, the Supreme Court, in Windsor, (Sup Ct 6/26/2013) 111 AFTR 2d 2013-2385111 AFTR 2d 2013-2385, struck down section 3 of DOMA as an unconstitutional deprivation of equal protection.

Following Windsor, IRS issued Rev Rul 2013-17, 2013-38 IRB 201, which provided that a same-sex couple that was legally married in a domestic or foreign jurisdiction that recognized their marriage would be treated as married for federal tax purposes, regardless of where they currently live. Further, it provided that lawfully married same-sex couples must file as married couples for federal income tax purposes.
In response, many States issued guidance after the IRS ruling that required same-sex couples married in other states to file separate state income tax returns, even if their filing status was married filing jointly for federal income tax purposes.

Obergefell case. The Obergefell case was a consolidation of six lawsuits in four states (Michigan, Kentucky, Ohio, and Tennessee) that fell within the jurisdiction of the Sixth Circuit. These States defined marriage as a union between one man and one woman. While the facts of each lawsuit were different, they all challenged State same-sex marriage bans. The plaintiffs were 14 same-sex couples and two men whose same-sex partners were deceased who claimed that their Fourteenth Amendment rights were violated by their being denied the right to marry or by having their lawfully performed marriage in another State not given full recognition. In each case, the district court ruled in their favor. The Sixth Circuit consolidated the cases and reversed. The issues specifically raised in the cases were: (a) whether a State can refuse to allow same-sex couples to marry; and (b) whether a State must recognize an out-of-state same-sex marriage.

Supreme Court decision. Reasoning that the fundamental liberties protected by the Fourteenth Amendment’s Due Process Clause extend to certain personal choices central to individual dignity and autonomy—including intimate choices defining personal identity and beliefs—the Supreme Court held that a State must license a marriage between two people of the same sex.

The Court found that four principles and traditions demonstrate the reasons that marriage is fundamental under the Constitution and applies with equal force to same-sex couples:

  1. The right to personal choice regarding marriage (one of the most intimate decisions that an individual can make) is inherent in the concept of individual autonomy;
  2. The right to marry supports a two-person union unlike any other in its importance to the committed individuals, and same-sex couples have the same right as opposite-sex couples to enjoy intimate association (a right beyond mere freedom from laws making same-sex intimacy a criminal offense);
  3. The right to marry safeguards children and families and draws in related rights of child rearing, procreation, and education, and denying the recognition, stability, and predictability that marriage offers, causes children to suffer the stigma of knowing their families are somehow lesser; and
  4. Marriage is at the center of many facets of the legal and social order in the U.S., and there is no difference between same- and opposite-sex couples with respect to this principle.

The Court noted that society pledges to support a married couple, offering symbolic recognition and material benefits to protect and nourish their union. While the States are in general free to vary the benefits they confer on all married couples, they have throughout our history made marriage the basis for an expanding list of governmental rights, benefits, and responsibilities. Marital status affects: taxation; inheritance and property rights; rules of intestate succession; spousal privilege in the law of evidence; hospital access; medical decision making authority; adoption rights; the rights and benefits of survivors; birth and death certificates; professional ethics rules; campaign finance restrictions; workers’ compensation benefits; health insurance; and child custody, support, and visitation rules.

The Court found that the challenged laws burden the liberty of same-sex couples, and they abridge central precepts of equality. The right of same-sex couples to marry is also derived from the Fourteenth Amendment’s guarantee of equal protection. The Due Process Clause and the Equal Protection Clause are connected in a profound way, and this dynamic also applies to same-sex marriage. The marriage laws at issue are in essence unequal: same-sex couples are denied benefits afforded to opposite-sex couples and are barred from exercising a fundamental right. This denial works a grave and continuing harm, serving to disrespect and subordinate gays and lesbians.

The right to marry is a fundamental right inherent in the liberty of the person. Under the Due Process and Equal Protection Clauses of the Fourteenth Amendment couples of the same-sex may not be deprived of that right and that liberty. The Supreme Court held that the State laws challenged in these cases are invalid to the extent they exclude same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples.

While the Constitution contemplates that democracy is the appropriate process for change, the Court concluded that individuals who are harmed need not await legislative action before asserting a fundamental right. There was no reason to wait for further legislation, litigation, and debate.

Four separate dissents were filed by Chief Justice Roberts and Justices Scalia, Thomas, and Alito.

Taxes. In addition to the many and varied social, political, economic, etc. ramifications of the Court’s decision, there are also several tax implications. Just a few are noted below.

Simplified filing. Since the Windsor decision and Rev Rul 2013-17, same-sex married couples must generally file their federal tax returns as married (starting with the 2013 tax year, as well as for earlier years where the original return is filed on or after Sept. 16, 2013). However, for married same-sex couples who live in a State that didn’t recognize same-sex marriage, they had to file their State returns as unmarried taxpayers. This conflict caused couples in these States to incur added time, effort, and expense. Many State tax returns used the federal return as a starting point of sorts, and some States that didn’t recognize same-sex marriage required taxpayers to prepare a “dummy” federal return for purposes of completing their State return.

Illustration1: A married same-sex couple lived in a State that didn’t recognize their marriage and required “dummy” federal returns. The couple completed a joint federal income tax return, two individual “dummy” federal returns, and two individual State returns based on the two dummy returns.

Illustration2: A same-sex couple in a domestic partnership lived in a State that requires domestic partners to file a joint return based on a “dummy” federal return. The couple completed two individual federal income tax returns, one “dummy” joint return, and one joint State return based on the dummy return.
In this regard, the Obergefell decision essentially makes Windsor applicable not only for federal tax returns but for State returns as well. Thus, those in a same-sex marriage will be considered married for State and federal return purposes, eliminating the need for “dummy” forms.

Observation: The reverse problem may arise for same-sex couples who aren’t married, but are in a State-sanctioned domestic partnership or civil union or similar arrangement—they can’t file a joint federal return, but may be able to file a joint State return.

Married for State purposes. Same-sex couples who reside in States that didn’t previously allow same-sex marriages can now marry. Same-sex couples who were married in States that allowed such but moved to States that didn’t recognize same-sex marriages are now married for State purposes. Although the tax regimes of each State are beyond the scope of this article, there are a number of significant provisions common to all. These include, among other things:

  • Filing status. Filing a joint return may, but won’t necessarily, result in lower taxes.
  • Deductions. The decision to itemize deductions or claim the standard deduction is made as a marital unit.
  • Tax credits. Many tax credits phase out when income reaches a certain threshold; married taxpayers could be eligible for credits that they weren’t before or, conversely, ineligible for credits that they could receive before.

In addition, in States that impose estate and gift taxes (or inheritance taxes), many have favorable provisions for transfers to or involving a spouse similar to the federal rules, such as a marital deduction or the ability to make split gifts.

Domestic partners and civil unions. A unique problem may arise for same-sex couples who are in a State-sanctioned domestic partnership or civil union or similar arrangement. Presumably, with all States now required to provide same-sex marriages, there is likelihood that in many (if not all) cases, these marriage “substitutes” may eventually fade away. If that’s the case, such same-sex individuals may have to choose if they want to be married for federal tax purposes—a consideration that needs to take into account many factors.

Tax-exempt status. Justice Roberts, in his dissenting opinion, noted that hard questions arise when people of faith exercise religion in ways that may be seen to conflict with the new right to same-sex marriage. Echoing a theme from oral arguments in this case, he cited as an example a religious college that provides married student housing only to opposite-sex married couples, or a religious adoption agency that declines to place children with same-sex married couples. In Bob Jones University v. Simon, et al, (Sup Ct 1974) 33 AFTR 2d 74-127933 AFTR 2d 74-1279, the Supreme Court upheld the denial of tax-exempt status to a private university with racially discriminatory admissions policies. In oral arguments, the Solicitor General candidly acknowledged that the tax exemptions of some religious institutions would be in question if they opposed same-sex marriage. Justice Roberts opined that “[t]here is little doubt that these and similar questions will soon be before this Court.”

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