Surviving Spouse of Same-Sex Couple Entitled to Federal Estate Tax Deduction, Rules Federal Court

A federal appeals court has held that the surviving spouse of a same-sex couple who was denied the benefit of the spousal deduction under federal tax law was denied the equal protection of the law guaranteed by the Fourteenth Amendment of the US Constitution.

Edith Windsor sued as surviving spouse of a same-sex couple that was married in Canada in 2007 and was resident in New York at the time of her spouse’s death in 2009. Ms. Windsor was denied the benefit of the spousal  deduction for federal estate taxes solely becauseSurviving Spouse of Same-Sex Couple Entitled to Estate Tax Deduction, Rules Federal Court Section 3 of the Defense of Marriage Act defines the words “marriage” and “spouse” in federal law in a way that bars the Internal Revenue Service from recognizing Ms. Windsor as a spouse or the couple as married.

As a result of the adverse determination of the Internal Revenue Service, Ms. Windsor sought a $363,053 refund in overpayment of estate taxes.

The text of § 3 is as follows:
In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word “marriage” means only a legal union between one man and one woman as husband and wife, the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.

The Second Circuit observed that the marital status of individuals under State law is recognized in the administration of federal tax laws and that the State of New York recognized the validity of foreign same-sex marriages.

In upholding the federal district court, the appeals court found that historically homosexuals have been the victims of discrimination and persecution, and therefore any federal law that purported to deny them equal protection of the laws is subject to "heightened scrutiny."

The Second Circuit found DOMA to be an "unprecedented intrusion into an area of traditional state regulation," such that (for this as well as other reasons given by the court) does not justify the DOMA's denial of the spousal deduction given by federal tax law to heterosexual couples.

The First Circuit Court of Appeals has held similarly, and an appeal to the U. S. Supreme Court is likely. If the high court agrees to hear the cases, a decision on the constitutionality of DOMA is expected not later than June 2013.

The future of estate planning by same-sex couples is almost certain to be significantly impacted by a decision of the Supreme Court.

Windsor v. U. S., October 18, 2012.
 

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