The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
By Frank S. Berall, Esq.
Copp & Berall, LLP, Hartford, CT
Now that part of the Defense of Marriage Act (hereafter DOMA) has been declared unconstitutional by the U.S. Supreme Court in Windsor v. U.S.,1 in Hollingsworth v. Perry, same-sex marriage has been allowed to resume in California.2 It is now legal in 13 states: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, as well as the District of Columbia. A majority of Americans believe it should be legal. Neither the United States territories of American Samoa, Guam, Puerto Rico nor the U.S. Virgin Islands have any laws either allowing same-sex marriage nor provisions concerning valid ones solemnized elsewhere.
In Windsor, DOMA barred a surviving spouse from claiming the federal estate tax marital deduction. Justice Kennedy, in a five to four decision by the U.S. Supreme Court, pointed out this violated the Fifth Amendment's provisions concerning deprivation of liberty without due process of law. He stated DOMA forces same-sex couples to live as married people, for purposes of state law, but as unmarried for purposes of federal law.
He pointed out that both the definition and the right to marry are traditionally state powers; not an enumerated one of Congress. Since DOMA inhibits these state powers, he claimed DOMA's rationality could not survive the doctrine of heightened scrutiny. Then, he detailed the unsound purposes of DOMA, such as its bringing harm to a group, saying this may not justify a law mandating the latter's disparate treatment. He also explained DOMA's infringement on federalism, by seeking to "influence and interfere with" the decisions of states to permit same-sex marriage, as well as in restricting freedom of same-sex couples in those states where same-sex marriage is legal.
In Hollingsworth, the Supreme Court refused to review the Ninth Circuit's opinion and returned the case to California's federal district court. This had held that California's Proposition 8's amendment to the California Constitution to ban same-sex marriage was unconstitutional. Thus, Chief Justice Roberts stated that appellants, as intervening petitioners, had no standing to appeal the California federal district court's order declaring Proposition 8 unconstitutional. Same-sex marriage resumed in California on June 27, 2013.
Civil unions or broad domestic partnerships are legal in Colorado, Hawaii, Illinois, Nevada, New Jersey, New Mexico, Oregon and Wyoming. Other states providing some protections for same-sex couples, but not same-sex marriage, are Pennsylvania, West Virginia and Indiana.
Among the questions raised by the Supreme Court's two DOMA cases are:
(1) Whether the U.S. Code's definition of marriage,3 is the only one defining "marriage."
(2) Could the federal government adopt a policy that a marriage valid in any state will be recognized for federal law purposes, whether or not that marriage is recognized by the domiciliary state? This seems within the power of the President and appears consistent with the administration's views.
Neither same-sex marriage nor civil unions are recognized in Alabama, Alaska, Arizona, Florida, Idaho, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah or Virginia. Furthermore, federal law does not explicitly prohibit a state to honor a same-sex marriage that was validly celebrated in another jurisdiction.
Alaska, Arizona and Montana allow certain limited domestic partnership benefits to same-sex partners of state employees. Since July 1, 2009, Colorado has permitted any two unmarried adults to enter into a designated beneficiary agreement. This provides certain rights and responsibilities, including hospital visitation rights, medical decision making authority and inheritance rights.
A couple of questions arise:
(1) Could someone (such as an Arab) with more than one wife obtain a marital deduction for bequests to his two or three wives?4
(2) Could someone marry several people, as permitted in some Arab and other countries with the United States required to recognize their marriages?
Polyandry, evidently permitted in Mongolia, but not in Islamic countries, involves a woman who married several men. Perhaps applicable marriage law would have to be gender neutral.5
A woman's marriage to several men, in a country permitting it, would not be valid in the United States, since it would be unconstitutional by U.S. standards. Even if men could have several wives, this apparently would not permit same-sex polygamy.6
Questions concerning the validity of marriages where celebrated, without regard to what a state does, should not offend the notion of federalism. It affects and but does not override state law. Thus, this should be an added benefit providing clarity about federal law, based on an argument that the equal protection clause requires it.
Could the federal marital deduction be claimed where one spouse dies in a state not recognizing a same-sex marriage? Presumably, the executor would have to try to claim it, if necessary even by applying for a PLR to ascertain the IRS's position. However, it might be difficult to get the ruling before any tax is due, unless the I.R.S. already has a plan to deal with this problem.7
While it is now clear that the portion of DOMA prohibiting same-sex marriage is unconstitutional and California's Proposition 8, which temporarily ended same-sex marriage in that state, is also invalid, the Supreme Court refrained from invalidating any other states' prohibitions against same-sex marriage. Thus, there is no national law allowing it in the United States.
The Windsor and Perry cases have held invalid one section of DOMA, permitting a federal estate tax marital deduction. While neither case dealt with the point, filing of joint federal income tax returns by same-sex couples now seems valid. Furthermore, the cases did not give a broad ruling affecting all states. Thus many unanswered questions remain.
For more information, in the Tax Management Portfolios, see Horwood, Zaluda, Wolven and Hudgins, 813 T.M., Estate Planning for the Unmarried Adult.
Copyright©2013 by The Bureau of National Affairs, Inc.
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