Still Tied Up In Knots - IRS and DOL Guidance on Same-Sex Marriage Following Supreme Court’s Windsor Decision

by Dechert LLP
Contact

As we previously reported, in United States v. Windsor, 133 S. Ct. 2675 (2013), the U.S. Supreme Court held section 3 of the Defense of Marriage Act to be unconstitutional.1 Section 3 of the Defense of Marriage Act provides that, in any federal statute, the term “marriage” means a legal union between a man and a woman as husband and wife, and that the term “spouse” refers to a person of the opposite sex.

In response to Windsor, the Internal Revenue Service (the “IRS”) issued Revenue Ruling 2013-17 (the “First Ruling”) and Frequently Asked Questions (the “FAQs”) to provide guidance relating to the marital status of a same-sex spouse for purposes of the Internal Revenue Code of 1986 (the “Code”). As follow-up guidance to the First Ruling, the IRS issued Revenue Ruling 2013-61 (the “Second Ruling”) to provide special administrative procedures for employers to recover overpayments of employment taxes with respect to certain benefits provided to same-sex spouses. In addition, the U.S. Department of Labor (the “DOL”) issued Technical Release 2013-04 (the “Release”) to provide general guidance on the meaning of the terms “spouse” and “marriage” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and certain provisions of the Code subject to its rulemaking authority.

According to the First Ruling and the Release, for purposes of the Code and ERISA, the terms “spouse,” “husband” and “wife” include an individual who is legally married to a person of the same sex in any state or foreign jurisdiction that authorizes same-sex marriage, and the term “marriage” includes such legally recognized same-sex marriage. Such terms do not include any individual who has entered into a registered domestic partnership, a civil union or any other similar formal relationship (whether with a person of the opposite or same sex). Both the First Ruling and the Release clarify that a same-sex marriage will be valid so long as the couple is married in a state that recognizes same-sex marriage, even if the state in which the couple lives does not – the so-called “Place of Celebration” rule. In taking this position, both the IRS and the DOL expressly rejected the alternative approach that would have recognized the validity of marriage based on the laws of the state in which the couple lived at any given time.

The First Ruling has been in effect prospectively as of September 16, 2013. As a result, regardless of the terms of the applicable plan documents, all employee benefit plans must be operated in compliance with the First Ruling for federal tax purposes. As mentioned in the FAQs, a qualified retirement plan must therefore treat a legally married same-sex spouse (but not a domestic partner or an individual in a similar relationship) as a spouse for purposes of satisfying the federal tax rules relating to qualified retirement plans, such as the requirement for spousal consent in beneficiary designations, even if the employer operates in a state that does not recognize same-sex marriage. In addition, plans that provide health or welfare benefits to same-sex spouses will no longer report imputed income for such spousal benefits, in contrast with the income imputed for benefits offered to domestic partners.

With respect to any employer-provided health benefits or fringe benefits that are excludible from income under the Code based on an individual’s marital status, the First Ruling may be applied retroactively to file a claim for refund or credit to recover overpayments of employment and income taxes. Such retroactive relief is available only if the applicable statute of limitations for filing a claim is open (typically, the limitations period is three years) and a consistent position is taken on the return or claim.

In the Second Ruling, the IRS specifically provides special alternative procedures for recovering overpayments of employment taxes. Such procedures are optional and are intended to ease the burden on employers that would otherwise have to file a separate Form 941-X for each calendar quarter for which a refund claim or adjustment is made. Under these special procedures, employers are permitted to use the fourth-quarter 2013 Form 941 to correct overpayments of employment taxes with respect to the first three quarters of 2013, or, alternatively, to file one Form 941-X for the fourth quarter of 2013 to correct overpayments of FICA taxes for all quarters of 2013. Additionally, with respect to any calendar years preceding 2013, employers may recover overpayments by filing one Form 941-X for the fourth quarter of such prior year, so long as the period of limitations has not expired (and, in the case of adjustment, the period of limitations will not expire within 90 days after filing the adjusted return).

The IRS has not extended a retroactive application of the First Ruling to matters relating to qualified retirement plans. Rather, the IRS has indicated in the First Ruling that it will issue further guidance regarding how the Windsor decision will apply to qualified retirement plans and other tax-favored retirement arrangements, including guidance regarding plan amendments and any required corrections relating to plan operations to preserve the tax-qualified status of the plan. Similarly, the DOL has indicated in the Release that future guidance will be issued addressing specific provisions of ERISA.

Pending further guidance by the IRS and the DOL, employers and plan sponsors should review and update, as appropriate, all plan documents and plan-related materials to ensure that they comply with the guidance described above. Such efforts may involve multiple parties and may require, among others, coordinating with the plan's third-party administrators, insurance providers and trustees, as well as communicating with plan participants. Employers and plan sponsors may want to consider whether they wish to take any additional steps depending upon their own particular circumstances, even before additional guidance is issued. Employers may also wish to consider the use of the special procedures available under the Second Ruling to recover any overpayments of employment taxes.

Numerous questions regarding a wide range of employee benefits remain after Windsor. The First Ruling and the Second Ruling, together with the FAQs and Release, are only the first steps that will be taken by the regulators to clarify the way that applicable rules will apply to same-sex spouses.

Footnotes

1 For more details regarding the Windsor decision and a discussion of the issues raised thereby, please see the July 2013 legal update from Dechert’s Employee Benefits and Executive Compensation Group, entitled “Supreme Court DOMA Decision Is Far-Reaching, But Leaves Many Unanswered Questions for Employers.”

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP
Contact
more
less

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!