Sooner Than Expected... Clarification Provided on Same-Sex Marriage Issues

October 14, 2013

An uncharacteristically quick turn-around time from the IRS and DOL brings us an update on the Windsor ruling.

An uncharacteristically quick turn-around time from the IRS and DOL brings us an update on the Windsor ruling, and how same-sex marriages will be treated for federal tax and qualified retirement plan purposes.

It's always nice when issues get resolved, or progress is made, sooner than expected. Especially when it comes from historically slow-moving entities, like the IRS and DOL. At times, the bureaucratic process seemingly required to make decisions within the two entities results in a decision made only after years of discussion or, often times, a decision that is never made at all. But maybe we should consider ourselves lucky, since at least the IRS is not as contradictory or inconsistent as say... the NCAA's Infractions Committee. Yes, I am a huge college football fan. And maybe I'm a little biased since I happen to be a life-long USC Trojan fan, and the NCAA Infractions Committee penalized USC exponentially worse than other schools with similar (if not worse) violations, then rejected USC's recent request for a reduction in the penalty after giving Penn State relief for "good behavior." I could go on for hours about that, but let's not digress (further than I have already). I'll just say that, luckily, the IRS and DOL seem to be motivated to keep things moving faster than usual on this particular issue, and are at least trying to be consistent between the two of them.

In August and September of 2013, some of the questions that were still lingering in my previous posting were addressed by the IRS and DOL at what seemed to be break-neck speed (relative to how long it takes to get anything else done by most government agencies). The clarification comes in the form of Revenue Ruling 2013-17 (Rev. Rul. 2013-17) addressing federal tax treatment and the DOL's Technical Release No. 2013-04 as it relates to ERISA and other related deparmental regulations. Below are the questions addressed by these items.

State of Celebration or State of Domicile?

A question not initially answered by the Supreme Court's decision in United States v. Windsor was "How is a 'valid' same-sex marriage determined for federal tax purposes?" Specifically, it was asked whether the validity of a marriage is based on the state of celebration (where the marriage took place) regardless of whether the state of residence/domicile recognizes same-sex marriage OR do the spouses have to be married and currently reside in a state that recognizes same-sex marriage?

Rev. Rul. 2013-17 and Technical Release No. 2013-04 confirmed what most suspected would be the response by announcing that same-sex couples legally married in a state or jurisdiction that recognizes same-sex marriages, regardless of the state they currently reside, will be treated as being married for federal tax and qualified plan purposes.

In hindsight, the answer was inevitable, since the difficulty of tracking a couple's state of residence/domicile, which conceivably could change a number of times during a marriage, would be much more difficult than it would be to simply confirm at the outset that the same-sex couple was married in a state that recognizes same-sex marriages.

What About Registered Domestic Partners, Civil Unions, or Other Formal Relationships?

The new guidance in Rev. Rul. 2013-17 also provides clarification on how registered domestic partnerships, civil unions, or other similar formal relationships recognized under state law that are not identified as marriage under the laws of the state will be treated.

The short answer is that these relationships will not be treated as being "married" under federal law, and therefore will not receive the benefits or treatment of married couples. The ruling specifically states that the terms "spouse," "husband," and "wife" do not include individuals (whether of the opposite sex or the same sex) who have entered into any of these formal relationships.

Lesson learned? If you want to be treated as a married couple by the federal government and its agencies, regardless of if you have a same-sex or opposite-sex relationship...then get married.

What Does This All Mean?

  • For Federal Tax Filing: This means that for tax year 2013 and going forward, same-sex spouses generally must file using a married filing separately or jointly filing status. For tax year 2012 and all prior years, same-sex spouses who filed their tax returns timely may choose (but are not required) to amend their federal tax returns to file using married filing separately or jointly filing status, provided the period of limitations for amending the return has not expired.
  • For Qualified Retirement Plans: This also applies to qualified retirement plans, which are required to comply with Rev. Rul. 2013-17 as of September 16, 2013, even if the plan/employer operates in a state that does not recognize same-sex marriages. Although, the IRS does intend to issue further guidance on how qualified retirement plans must comply with Windsor and Rev. Rul. 2013-17 before future guidance is issued, such as plan amendment requirements and any necessary corrections relating to plan operations.

Stay Tuned

While Rev. Rul. 2013-17 and Technical Release No. 2013-04 provide clarification on the same-sex marriage issue in terms of federal tax treatment and certain qualified retirement plan issues, it does not touch on all of the issues, nor does it confirm how all federal agencies will look at the issue. It might be safe to assume that they will fall in line with these recent updates, but you should still keep an eye out for any other updates related to this matter how long it might take.

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Chad is currently an Attorney Consultant for the Corporate Law Department at Pacific Life. Previously, he was a Senior Retirement Strategies Consultant, bringing more than 13 years of industry experience to his role and providing technical insights to our sales team and registered representatives on a variety of issues including IRAs, qualified plans, annuities, and estate planning issues.

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