US Supreme Court to Review DOMA Challenge of Same-sex Marital Deduction
The Supreme Court of the US has agreed to review the Court of Appeals for the Second Circuit (the “Appeals Court”) decision in Windsor v. US, which upheld a challenge to Section 3 of the Defense of Marriage Act (“DOMA”). DOMA denies recognition of same-sex marriages for purposes of administering federal law.
In 1993 the taxpayer and the decedent registered as a domestic partnership in New York City and got married in Canada in 2007. Decedent died in February of 2009 leaving her entire estate to Taxpayer, which was above the $3.5 million estate tax exemption. Citing DOMA the IRS claimed the estate did not qualify for the unlimited marital deduction under Section 2056(a) of the Internal Revenue Code. As a result, the estate had to pay $363,053 in federal estate tax. On November 9, 2010, Taxpayer commenced a suit in district court for a refund of the federal estate tax and a declaration that DOMA violates the Equal Protection Clause of the 5th Amendment.
The District Court applied a rational basis standard and held that DOMA was unconstitutional and that Taxpayer was entitled to a refund of the federal estate tax. The Appeals Court upheld the district court opinion. The Appeals Court found that homosexuals are a quasi-suspect class entitled to heightened scrutiny and DOMA’s classification of same-sex spouses wasn’t substantially related to an important government interest and was unconstitutional.
Important: If the Supreme Court of the US upholds the Appeals Court decision, then same-sex married couples will have all of the tax benefits available to heterosexual married couples. Thus, same-sex couples will be entitled to the portability election, the unlimited estate and gift tax marital deductions, and the many income tax benefits available to married couples.