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Estate PlanningLegal AnalysisMarriage Equality

The IRS Takes a Bite Out of DOMA, Pt 3

By November 6, 20133 Comments

Before beginning today’s article in earnest, a brief recognition and review of the legislative process is relevant. Yesterday, Tuesday, November 5, 2013, was a historic day for Illinois. The state’s legislature voted affirmatively on the question of marriage equality, i.e., allowing Illinois same-sex couples to marry. Thus, Illinois LGBT couples, as of June 1, 2014, may enter into a legal state of loving matrimony.

Listening to members on the floor of the House deliver the reasons  why they favored the bill, SB10, one theme rang loud and clear: We should not be a society where the law treats individuals or groups in our population differently because other individuals or groups disagree with their lifestyles, don’t like them, or may not understand what makes them “different.”

Sidebar: I’m saving arguments that address the reductio ad absurdum issue for later.

Being one of those “different” kinda folks myself, I have always been a proponent of marriage equality and LGBT equal rights. Yet, when I saw and heard Catholics and African American men steadfastly and eloquently place their support behind the law, a sense of pride in our legislature, in our democratic system of governance, in our state, washed over me.

While Illinois, most assuredly, has its fiscal woes, our money problems aren’t, or at least shouldn’t be, the ultimate issue. The ultimate issue is whether those of us with immutable differences, such as sexual orientation and identification, skin color, or ethnicity, should be afforded the same rights as those whose immutable characteristics are more commonplace. Surely, if we look deep enough, we will recognize that, in some way, we are all different, and our differences should not be the sole basis for refusing, abrogating, eliminating, or enlarging our rights individually and collectively. The fundamental rights of all should be equal. Therefore, if a state gives the right to marry or literally speaking, license to marry, to one group, it is an abomination to our system of democracy if we do not provide the same license to another.

So it stands that Illinois citizens should applaud our legislators who lifted the rights of all Illinoisans yesterday when they provided marriage equality to our LGBT community.

Now back to the business at hand, which is even more poignant for Illinois couples given the last 24 hours.

marriage equality couples

Because of Windsor and the flurry of guidance that followed, disparate treatment of lawfully married same-sex couples under federal tax laws has been virtually eliminated. Therefore, estate and tax planning for same-sex married couples is more aligned with traditional estate planning methods for opposite-sex married couples.

In the post Illinois Civil Union – make that the Illinois Religious Freedom and Marriage Fairness – Act and post Windsor plus guidance world, a same-sex married couple in Illinois should receive equal federal and Illinois treatment for purposes of income tax, estate tax, qualified retirement plans under ERISA, and FICA. However, practitioners must be mindful of the nuances between Illinois and federal law, such as, statute of limitations for amending returns, date of marriage recognition, portability*, and the fact that Illinois estate tax exemption is lower than the federal exemption.

*Portability is the “check the box rule” that allows a surviving spouse to use the unused portion of the deceased spouse’s lifetime gift exemption.

EXAMPLE: Michael dies on June 30, 2014 and used $1M of his $5.34M federal exemption. David, Michael’s surviving spouse can add the remaining $4.34M of Michael’s exemption. This means if David hasn’t used his, he now has $9.68M to give away tax free during his lifetime.

NOTE: Before the Rev. Rule 2013-17, this wasn’t available to lawfully married same-sex couples anywhere in the U.S.

So what does this mean for filing purposes? Because lawfully married same-sex couples are now equal in the eyes of the state and federal tax regimes for Illinois, they don’t have to complete “dummy” federal returns for income or estate tax purposes.

WARNING: Illinois couples who are currently only in Civil Unions are not in federally recognized relationship; so, they must still complete the “dummy” forms.

IRS Notice 2013-61 followed Rev. Rule 2013-17 and is at the center of the tax return amending issue for most married same-sex couples. The Notice requires employers to amend their 941 returns with respect to over withholding, FICA overpayment, and benefits counted as wages. Why is this relevant to estate tax returns? To file an accurate estate tax return, Form 706, an accountant or attorney should have an accurate income tax return record. Therefore, for these purposes especially, before amending a 706, a decedent spouse’s 1040 should probably be amended to account for Notice 2013-61 issues.

Debates wage among colleagues about whether to file an amended return for an estate that is not taxable and, given the level of the federal exemption for a married couple, only very few estates are taxable at the federal level and even at Illinois’ level.  Yet, if the income tax return is being amended, then filing a 706 might be advisable for consistency’s sake. Also, a surviving spouse should file a 706 if he or she wants to or should elect portability. All of this ultimately suggests that surviving spouses of same-sex marriages should request a filing extension on original returns to ensure that all tax records are thoroughly reviewed before filing amendments.

The same premises apply for Illinois estate taxes because federal numbers drive state numbers.

Of course, just because tax returns that fall within the statute of limitations should be reviewed, doesn’t mean they should be amended. Like a surviving spouse of an opposite sex marriage, a surviving spouse of a same-sex marriage might have to pay more taxes. Nevertheless, couples should review the amendment issue.

As discussed last week, Rev Rule 2013-17 stipulates that “affected taxpayers may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns or claims for credit or refund for any overpayment of tax resulting from these holdings providing the applicable limitations period for filing such claim under Code section 6511 has not expired.” Section 6511 provides that generally, the federal statute of limitations is 3 years from the date of filing or 2 years from the date of paid, whichever is later. The extension will also lengthen the statute of limitations. Still, Illinois is different. The filing date deadline is the same as the federal deadline, but the paid deadline is shorter. Thus, extreme caution is advised in all of this.

The last thing newlyweds want is Uncle Sam ringing the doorbell because he won’t be bringing wedding gifts; that’s for sure.

If you or someone you know is an Illinois Civil Union and planning to marry, the ACLU and Lambda Legal have a good FAQ on Illinois marriage equality.


Here’s to the United States Supreme Court and the Illinois legislature ruling on the side of love.

NO MO DOMA in Illinois.

The IRS Bites DOMA, Pt 1 | 2 | 3 | 4

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