As we have discussed in previous posts, the impact of the United States v. Windsor case has been broad. This landmark ruling invalidated provisions of the Defense of Marriage Act, paving the way for recognition of same-sex marriages when it comes to federal tax purposes.
Earlier this month, the IRS issued Notice 2014-19, expanding the reach of Windsor to federally qualified retirement plans. Prior to this ruling, there was little clarity regarding the IRS’s position on whether same-sex spouses were considered “spouses” in the eyes of a qualified plan—especially in states that do not currently recognize same-sex marriages. Notice 2014-19 dispels any confusion: flatly stating that as far as the IRS is concerned, same-sex spouses are covered by the benefits afforded heterosexual spouses by these retirement plans.
Plans that do not currently cover same-sex married spouses will need to be amended to reflect the new, federal guidelines enacted by this notice. Benefits that are now extended to same-sex spouses include survivor annuities, payment of benefits after the death of a spouse, and some employee stock ownership privileges.
The Notice also refreshes the reader’s memory about how a same-sex marriage can be recognized by the federal government, stating that the IRS:
“adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.”
This is a comparison of the two ways same-sex marriages are either recognized or disregarded, the “state of celebration” approach adopted by the IRS, and the “state of domicile” approach favored by states who do not allow same-sex marriages within their borders.
The “state of celebration,” described above in the quotation from Notice 2014-19, is the state where a same-sex couple received a valid marriage license. For example, a same-sex married couple receives a marriage license in California (where same-sex marriage is recognized), yet they live in Arizona (where it is not, as of publication of this piece). For federal purposes, the “state of celebration” is California—so the IRS recognizes that marriage. Conversely, at the state level, because the couple lives in Arizona, the “state of domicile” is Arizona, and their marriage is not recognized within that state.
As recognition of same-sex marriages increases across the country in the wake of Windsor, changes such as this IRS Notice will become commonplace. It is important for same-sex couples to consult with an attorney who understands the current institutional landscape so that they receive all of the protections and privileges that they are due.