Skip Page Banner  
About This Blog

The Bloomberg BNA Estate Tax Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.

Blogroll
ESTATE TAX
BLOG

 

Monday, June 11, 2012

Constitutionality of DOMA and Its Importance in the Area of Tax

RSS

 As you probably know, Congress passed the Defense of Marriage Act (DOMA) in 1996. In recent years, the two main provisions of DOMA have been challenged in the courts as being unconstitutional. The first section, §2, provides that individual states are not bound by the full faith and credit clause of the Constitution to recognize same-sex marriage legally performed in other jurisdictions. The other more controversial section, §3, provides that in determining any Act of Congress or any interpretation by any agency of the United States, “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband and wife.”

The constitutionality of §3 of DOMA will have wide-reaching effects. See Cong. Budget Office, “For Better or for Worse: Marriage and the Federal Income Tax” (1997) reprinted at http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/0xx/doc7/marriage.pdf . See also, Cong. Budget Office, “The Potential Budgetary Impact of Recognizing Same-Sex Marriages,” (2004), available at http://cbo.gov/ftpdocs/55xx/doc5559/06-21-SameSexMarriage.pdf . The General Accounting Office has identified the following nine areas where marital status affects benefits, rights, and privileges: (1) Social Security; (2) programs to alleviate poverty, such as housing, food stamps, and public assistance; (3) veterans and military programs; (4) taxation; (5) employment; (6) immigration; (7) criminal and family violence laws; (8) loans and credit; and (9) education. See also, “Letter from the Attorney General to Congress on Litigation Involving the Defense of Marriage Act” posted on the Department of Justice website at http://www.justice.gov/opa/pr/2011/February/11-ag-223.html.

In the last two weeks, three courts have ruled that §3 of DOMA is unconstitutional, including the First Circuit Court of Appeals. See Massachusetts v. HHA, No. 10-2204, 10–2207, and 10–2214 (1st Cir.5/31/12), and Dragovich v. U.S., No. 4:10-cv–01564–CW (N.D. Cal. 5/24/12). The issue in Massachusetts v. HHA and Dragovich involved the rights of same-sex couples to receive benefits at the federal and state levels, respectively.

The third case that has come out in the last two weeks is the first case involving a tax issue. Windsor v. U.S., No. 10-cv–08435–BSJ-JCF (S.D. N.Y. 6/6/12) dealt with the ability of the surviving spouse of a same-sex marriage to take the unlimited marital deduction under §2056(a). The District Court for the Southern District of New York held that §3 of DOMA was unconstitutional pursuant to the Equal Protection Clause of the Constitution. The court noted the different levels of scrutiny under which an Equal Protection argument can be analyzed, and determined that the simplest, i.e., rational basis review, was all that was necessary and stated, “because the Court believes that the constitutional question presented here may be disposed of under a rational basis review, it need not decide today whether homosexuals are a suspect class.”

There have been other courts that have ruled that DOMA is unconstitutional. See, e.g., In re Levenson, 560 F.3d 1145 (9th Cir. 2009) (in case involving employee of federal court system, Judicial Council of the Ninth Circuit held that applying DOMA to Federal Employee Health Benefits Act (FEHBA) so as to deny request for federal benefits for partner who was same-sex spouse under state law violates Fifth Amendment due process clause); Golinski v. U.S., 824 F. Supp. 2d 968 (N.D. Cal. 2012) (§3 of DOMA ruled unconstitutional in case involving staff attorney for Ninth Circuit Court of Appeals insofar as DOMA denied her same-sex spouse health benefits); In re Balas, 449 B.R. 567 (Bankr. C.D. Cal. 2011).

However, there have also been courts which have ruled that DOMA is constitutional. Wilson v. Ake, 354 F. Supp. 2d 1298 (M.D. Fla. 2005) (held that §2 of DOMA dealing with full faith and credit clause is constitutional); Smelt v. County of Orange, 374 F. Supp. 2d 861 (C.D. Cal. 2005) rev'd on other grounds, 447 F.3d 673 (9th Cir. 2006); In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004).

In the early years of DOMA, the IRS did not seem to question the constitutionality of DOMA and applied DOMA in several letter rulings. See PLRs 200524017 (deferred compensation plan), 200524016 (deferred compensation plan), 200339001 (income employment tax treatment of medical and dental benefits), 200108010 (health care plan provided through VEBA), 9850011 (health care benefits), and 9717018 (group benefit plans). However, recently the IRS has indicated that it would ignore DOMA at least inasmuch as it applies to registered domestic partners. See PLR 201021048 and CCA 201021050 (without addressing DOMA, the federal tax treatment of community property should apply to California registered domestic partners).

With respect to the rulings of the courts and the rulings of the IRS, two things should be noted. First, the courts that have ruled that DOMA is unconstitutional are courts from traditionally liberal jurisdictions. I believe the results were anticipated. In staying its ruling, the First Circuit noted its belief that certiorari would be sought and that Supreme Court would review DOMA. As anyone who has followed the Supreme Court of late can guess, it is probable that this will be another 5-4 decision with Justice Kennedy being the deciding vote.

Second, with respect to the IRS’s view, it should be noted that the letter rulings cited above were all issued during the Bush administration. The PLR and CCA dealing with community income of registered domestic partners in California were issued during the Obama administration. In 2011, the Obama administration notified Congress of its belief that DOMA was unconstitutional and its intention to not litigate these cases. See “Letter from the Attorney General to Congress on Litigation Involving the Defense of Marriage Act” posted on the Department of Justice website at http://www.justice.gov/opa/pr/2011/February/11-ag-223.html. At this point, it is unclear whether the IRS is similarly refusing to enforce DOMA. The PLR and CCA dealing with community income of registered domestic partners in California seem to indicate that the IRS may have already made the decision to not enforce DOMA. Further, the dearth of tax cases and ruling in the area as of late may indicate the IRS’s reluctance to litigate the DOMA issue. However, it should be noted that the Windsor case was filed in district court on November 09, 2010, about 3 months prior to the Department of Justice’s letter.

Practitioners advising their same-sex clients to take tax-favorable positions should take some comfort in the few cases and rulings that have come out recently.

For two competing views on DOMA in the tax context, see Black, “Same-Sex Marriages and Taxes,” 22 B.Y.U. J. Pub. L. 327 (2008), and Cain, “DOMA and the Internal Revenue Code,” 84 Chi-Kent L. Rev. 481 (2009).

For further discussion of DOMA, see 843 T.M., Estate Tax Marital Deduction, V.B.3.b(2).

-Joseph Ecuyer, J.D., LL.M.
Estates, Gifts and Trusts Editor
Subscription RequiredAll BNA publications are subscription-based and require an account. If you are a subscriber to the BNA publication and signed-in, you will automatically have access to the story. If you are not a subscriber, you will need to sign-up for a trial subscription.

You must Sign In or Register to post a comment.

Comments (0)