After this summer’s landmark Supreme Court decision striking down the Defense of Marriage Act, many same-sex married couples in California celebrated the ability to be recognized as married under federal law. One of the big impacts of this change is in the area of tax law, where same-sex couples can now file joint federal returns, qualify for certain tax breaks, and qualify for the estate tax benefits such as the marital exemption.
The Internal Revenue Service has announced that same-sex couples will be able to amend their income tax returns from the past several years to reflect this, but some constitutional scholars are questioning how far back returns should be amended. Some are arguing that same-sex couples should be allowed to amend all past returns for the entire time they were legally married since a Supreme Court decision declaring a law unconstitutional renders it void from the start.
Currently amended estate tax returns are confined to a three-year statute of limitations, so taxpayers will only be able to see a refund for tax years 2010 and forward. The estate tax exemption for married couples allows for transfers to one’s spouse without taxation and without using up any of their lifetime gift tax exemption. As a result, some individuals stand to receive substantial refunds on their spouses estate if they were taxed in a year that qualifies. Extending the marital exemption to all legal marriages regardless of the statutes of limitations could be a big win for someone whose spouse passed away in the more distant past.
Source: Bloomberg, “Same-Sex Marriage Fight Looms Next on IRS Estate Refunds: Taxes,” Diane Freda, Oct. 15, 2013.