Same Sex Couples and Taxes

On October 23, 2015, the Department of the Treasury (Treasury) and the IRS published in the Federal Register (80 FR 64378) a notice of proposed rulemaking (REG–148998–13), which proposed to amend the regulations under section 7701 of the Internal Revenue Code (Code) to provide that, for federal tax purposes, the terms ‘‘spouse,’’ ‘‘husband,’’ and ‘‘wife’’ mean an individual lawfully married to another individual, and the term ‘‘husband and wife’’ means two individuals lawfully married to each other.

In addition, the proposed regulations provided that a marriage of two individuals will be recognized for federal tax purposes if that marriage would be recognized by any state, possession, or territory of the United States. Finally, the proposed regulations clarified that the term ‘‘marriage’’ does not include registered domestic partnerships, civil unions, or other similar relationships recognized under state law that are not denominated as a marriage under that state’s law, and the terms ‘‘spouse,’’ ‘‘husband and wife,’’ ‘‘husband,’’ and ‘‘wife’’ do not include individuals who have entered into such a relationship.

Written comments responding to the proposed regulations were received, and one person requested a public hearing. A public hearing was held on January 28, 2016; however, the individual who requested the hearing was not able to attend, but did submit supplemental comments. When given the opportunity, no one who attended the hearing asked to speak. After consideration of the comments, Treasury and the IRS adopt the proposed regulations as revised by this Treasury Decision.

Summary of Comments and Explanation of Revisions

The majority of commenters strongly supported the proposed regulations. Many commended Treasury and the IRS for publishing proposed regulations that reflect the holdings of Obergefell v. Hodges, 576 U.S. , 135 S. Ct. 2584 (2015), and Windsor v. United States, 570 U.S. , 133 S. Ct. 2675 (2013), instead of relying on sub-regulatory guidance. In general, commenters applauded Treasury and the IRS for determining that, in light of the Windsor and Obergefell holdings, marriages of same-sex couples should be treated the same as marriages of opposite-sex couples for federal tax purposes.

One commenter suggested that the regulations specifically reference ‘‘same- sex marriage’’ so that the definitions apply regardless of gender and to avoid any potential issues of interpretation.

Treasury and the IRS believe that the definitions in the proposed regulations apply equally to same-sex couples and opposite-sex couples, and that no clarification is needed. Proposed § 301.7701–18(a) states, without qualification, that, ‘‘[f]or federal tax purposes, the terms spouse, husband, and wife mean an individual lawfully married to another individual,’’ and that the ‘‘term husband and wife means two individuals lawfully married to each other.’’ The language is specifically gender neutral, which reflects the holdings in Windsor and Obergefell and is consistent with Revenue Ruling 2013–17. Similarly, the language in proposed § 301.7701–18(b) refers to a marriage of two individuals, without specifying gender. Amending the regulations to specifically address a marriage of two individuals of the same sex would undermine the goal of these regulations to eliminate distinctions in federal tax law based on gender. For these reasons, the final regulations do not adopt this comment.

Section 301.7701–18(a) of the proposed regulations provides that for federal tax purposes, the terms ‘‘spouse,’’ ‘‘husband,’’ and ‘‘wife’’ mean an individual lawfully married to another individual. The term ‘‘husband and wife’’ means two individuals lawfully married to each other. The preamble to the proposed regulations explains that after Windsor and Obergefell, marriages of couples of the same sex should be treated the same as marriages of couples of the opposite sex for federal tax purposes, and therefore, the proposed regulations interpret these terms in a neutral way to include same-sex as well as opposite-sex couples.

One of the commenters recommended that the IRS update all relevant forms to use the gender-neutral term ‘‘spouse’’ instead of ‘‘husband and wife.’’

The commenter stated that updating the forms to use gender-neutral terms would be cost-neutral and would more accurately reflect the varied composition of today’s families. The commenter further stated that updating the forms to be inclusive of same-sex couples would increase government efficiency by alleviating confusion, delays, and denials caused by current forms using outdated terms.

The commenter’s recommendation relates to forms and is therefore outside the scope of these final regulations.
Nevertheless, Treasury and the IRS will consider the commenter’s recommendation when updating IRS forms and publications.

Section 301.7701–18(b) of the proposed regulations provides that a marriage of two individuals is recognized for federal tax purposes if the marriage would be recognized by any state, possession, or territory of the United States.

One commenter stated that proposed § 301.7701–18(b) is redundant and
unnecessary in light of Obergefell.

According to the commenter, after Obergefell, same-sex marriage should be recognized in every state. Therefore, the commenter states that there is no need for a definition of marriage for federal tax purposes and proposed § 301.7701– 18 (b) should not be finalized.

Treasury and the IRS disagree that proposed § 301.7701–18(b) is unnecessary in light of Obergefell. The purpose of publishing these regulations is to ensure that, regardless of the term used in the Code, a marriage between two individuals entered into in, and recognized by, any state, possession, or territory of the United States will be treated as a marriage for federal tax purposes. The majority of comments supporting the proposed regulations agree with this view and specifically applaud Treasury and the IRS for publishing regulations to make this clear rather than relying on sub- regulatory guidance. Accordingly, the comment is not adopted and a definition of marriage for federal tax purposes is included in the final regulations under § 301.7701–18(b).

Another commenter recommended amending § 301.7701–18(b) of the proposed regulations to simply state that the determination of an individual’s marital status will be made under the laws of the relevant state, possession, or territory of the United States or, where appropriate, under the laws of the relevant foreign country (for example, the country where the marriage was celebrated or, if conflict of laws questions arise, another country).

The commenter pointed out that this revision is needed to ensure that a couple’s intended marital status is recognized by the IRS.

Specifically, the commenter explains that the language in proposed § 301.7701–18(b) makes it possible for unmarried couples living in a state that does not recognize common-law marriage to be treated as married for federal tax purposes if the couple would be treated as having entered into a common-law marriage under the law of any state, possession, or territory of the United States.

Next, the commenter explains that the language of the proposed regulations could result in questions about the validity of a divorce. Under Revenue Ruling 67–442, a divorce is recognized for federal tax purposes unless the divorce is invalidated by a court of competent jurisdiction. The language of the proposed regulations would undermine this longstanding revenue ruling if any state would recognize the couple as still married despite the divorce.

Finally, the commenter states that the language of proposed § 301.7701–18(b) could create a conflict with proposed
§ 301.7701–18(c) if at least one state, possession, or territory of the United States recognizes a couple’s registered domestic partnership, civil union, or other similar relationship as marriage. The commenter points out that in such a situation, regardless of the couple’s intention and where they entered into their alternative legal relationship, they could be treated as married for federal tax purposes under the language of proposed § 301.7701–18(b) if any state, possession, or territory recognizes their alternative legal relationship as a marriage.

According to the commenter, these examples demonstrate that the language in proposed § 301.7701–18(b) could be interpreted to treat couples who divorce or who never intended to enter into a marriage under the laws of the state where they live or where they entered into an alternative legal relationship as married for federal tax purposes. Without a change to proposed § 301.7701–18(b), these couples would be required to analyze the laws of all the states, possessions, and territories of the United States to determine whether any of these laws would fail to recognize their divorce or would denominate their alternative legal relationship as a marriage.

This was not the intent of the proposed regulations. Rather, the proposed regulations were intended to recognize a marriage only when a couple entered into a relationship denominated as marriage under the law of any state, territory, or possession of the United States or under the law of a foreign jurisdiction if such a marriage would be recognized by any state, possession, or territory of the United States. To address these concerns,  § 301.7701–18(b) is revised in the final regulations to provide a general rule for recognizing a domestic marriage for federal tax purposes and a separate rule for recognizing foreign marriages for federal tax purposes.