Wednesday, August 4, 2010

Defense of Marriage Act Held Unconstitutional in Massachusetts Federal District Court

Two Federal District Court cases held the Defense Of Marriage Act (hereinafter referred to as “DOMA” or the “Act”) to be unconstitutional. One found it violated the Fifth Amendment’s due process clause (Gill v. Office of Personal Management), and the other held that it violated both the Tenth Amendment and the Constitution’s spending clause (Massachusetts v. U.S. Department of Health and Human Services).

Enacted by Congress in 1996, DOMA keeps the Federal Government from recognizing same-sex marriages. The Act defines the word “marriage” to only mean the “legal union between one man and one woman as husband and wife.” The effect of this law is to deny all federal marriage benefits to same-sex couples, even to those same-sex couples who have been married under the laws of a jurisdiction where same-sex marriage is valid. Currently, the states of Connecticut, Iowa, New Hampshire, and Vermont, as well as the Commonwealth of Massachusetts and the District of Columbia have held such marriages to be legal. Several foreign countries also legally recognize marriage between same-sex individuals, including, but not limited to, Argentina, Canada, the Netherlands, South Africa, and Spain.

In the Gill case, the court held that DOMA violated the Fifth Amendment’s equal protection doctrine as set forth in its due process clause, because it denied federal rights and benefits to plaintiffs (who were federal government employees) to which they were entitled, based on their federal employment. These rights included health and Social Security benefits, as well as the right to file joint federal income tax returns. In the Massachusetts case, the court held that the Act violates the Tenth Amendment, by forcing the plaintiff (the Commonwealth of Massachusetts) to engage in discrimination against its own citizens.

On Summary judgment, the same judge decided both cases in favor of the plaintiffs on July 8, 2010. If appealed, the case must be filed with the First Circuit Court of Appeals by September 6, 2010. Obviously, the losing parties there will petition the United States Supreme Court for review.

If DOMA is ultimately held to be unconstitutional, the federal tax and estate planning implications for same-sex couples will be very interesting. Such implications might include the following:

- Joint Tax Returns. Will married same-sex couples be able to file joint returns? Striking down DOMA may not conclusively allow for joint filing since Internal Revenue Code Section 6013(a) specifically states that a “husband and wife” may file joint returns, rather than allowing for “spouses” to file. It should also be noted that the filing of joint returns does not always result in a lower tax, bearing in mind the marriage “penalty” that is sometimes paid by couples were both spouses earn approximately equal incomes.

- Estate and Gift Tax Marital Deduction. Section 2056(a) makes the marital deduction available for transfers passing from a “decedent to his surviving spouse.” This would seem to include transfers between federally recognized same-sex spouses. Gift splitting would also seem to apply.

- Retroactivity. Will the ruling be retroactive, allowing for the filing of amended returns? If so, income tax refund claims should be made for all prior years. Refunds might also be sought for gift tax paid on transfers between same-sex spouses where the unlimited marital deduction was not available. Divorced couples might also consider filing for a refund for years in which they were married. Executors of estates where the decedent was party to a same-sex marriage might also consider filing for a refund.

- Application to Civil Unions. If the Act is struck down, might registered domestic partnerships, like what we have here in Nevada, also be afforded marriage-type rights in tax planning? If so, how would our community property laws be applied? Might the IRS be required to boost basis for community-like property having passed from a deceased same-sex partner? While much of this discussion focuses on unlikely scenarios, it is provided to illustrate the complexity created by a retroactive law being broadly applied to legally recognized same-sex relationships.

 - Attorney David Grant

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