Earlier this year, the IRS issued guidance on the application of the Supreme Court's Windsor decision, which struck down section 3 of the Defense of Marriage Act (“DOMA”). An IRS ruling issued shortly after the Court's decision required qualified retirement plans to treat a same-sex spouse as a spouse for plan purposes as of September 16, 2013. However, that ruling didn't require plans to amend their terms to follow the Windsor decision. In April 2014 the IRS clarified that plan amendments are required by December 31, 2014, if a plan defines a marriage by reference to section 3 of DOMA or in a manner otherwise inconsistent with Windsor.
Remedial Amendment Period for Qualified Plans
Internal Revenue Code (“IRC”) Section 401(b) provides a period during which a plan may be amended retroactively to comply with the IRC's qualification requirements. The deadline for amending a plan is generally the time prescribed by law for filing the return of the employer for its tax year in which the amendment was adopted or such later time as the IRS may designate.
DOMA and the Windsor Decision
In 1996, Congress enacted, and President Clinton signed into law, 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." It further defined "spouse" as "a person of the opposite sex who is a husband or wife." As a result, same-sex spouses weren't recognized with respect to qualified retirement plans. In U.S. v. Windsor, the Supreme Court struck down section 3 of DOMA as an unconstitutional deprivation of equal protection. The Court stated that its opinion and holding were confined to "lawful marriages," indicating that those couples in domestic partnerships and civil unions would have to be legally married in a state (or country) that employs marriage equality to be married for federal purposes.
Formal IRS Guidance
Following the Court's decision, the IRS issued guidance explaining the federal tax implications of Windsor. In Revenue Ruling 2013-17 the IRS stated that same-sex couples legally married in a jurisdiction that recognizes their marriage (i.e., "state of celebration") will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. The IRS also stated that, for federal tax purposes, the terms "spouse," "husband and wife," "husband," and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law, and that the term "marriage" includes one between individuals of the same sex.
Revenue Ruling 2013-17 provided that its holdings apply prospectively as of September 16, 2013, but that taxpayers may rely on the holdings retroactively "with respect to any employee benefit plan or arrangement or any benefit provided therein only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income based on an individual's marital status.
Further guidance was released earlier this year on the application of Windsor to other employee benefits and employee benefit plans and arrangements. Notice 2014-19 states that a plan must be amended in certain situations, including if its terms with respect to the requirements of IRC Section 401(a) define a marital relationship by reference to section 3 of DOMA or otherwise contradict the outcome of Windsor. The deadline for adopting such amendments is generally December 31, 2014.
Deadline for Amendments Is Near
With only about three weeks remaining in 2014, retirement plans that have not already done so should ensure that the terms of their plans follow Windsor. In addition, plans that amended their terms shortly after Windsor was issued should ensure they comply with any subsequently issued guidance.
In addition to our extensive tax planning and accounting services, The Tax Warriors® at Drucker & Scaccetti have a dedicated LGBT Service Team providing tax and financial planning to the LGBT community and their employers. If you have questions about this blog or any LGBT tax issues contact Roz Sutch, our LGBT practice leader.