Today, the United States Supreme Court will hear arguments about the Constitutional rights of homosexual couples courtesy of the Internal Revenue Code.
The Court may rule on a variety of grounds in United States v. Windsor including standing (was the couple’s marriage recognized under New York law) and the proper Constitutional standard (does Intermediate Scrutiny apply to homosexuals) but the case started with a tax return.
Edie Windsor and Thea Spyer were New York residents and a couple for over 40 years. In 2007, they were married in Canada where same-sex marriage was legal. Upon Thea’s death, Edie filed a federal estate tax return, Form 706. Thea’s estate paid $363,053 in federal estate taxes because she was not eligible for the unlimited marital deduction under IRC §2056(a) – a benefit routinely applied to married couples of different sexes. Edie filed a claim for refund of the estate taxes paid. When that claim for refund was denied she filed suit in federal district court.
The refund denial was reversed by the U.S. District Court for the Southern District of New York and the Second Circuit Court of Appeals. Read opinions published in those cases here and here.
Whether not the Supreme Court issues a sweeping or narrow opinion on the rights of homosexuals, there is little question that the tax code touches everyone. After all, that’s where this case started.
The Supreme Court has granted the government’s petition for certiorari in United States v. Woods, No. 12-562. The high court will decide whether the IRC §6662 overstatement penalty applies to underpayments of tax that are “attributable to an overstatement of basis” when the basis has been disallowed because the transactions that established the basis lacked economic substance.
The Court also asked the parties to brief an additional issue related to the procedural history of the case. Specifically, the Court is interested in whether the district court had jurisdiction under IRC §6226 to consider the substantial valuation misstatement penalty. This question, which arises under the procedural guidelines that govern large partnerships in TEFRA, has been raised in many cases over the course of the last decade. The heart of the matter is what issues are appropriate for resolution in a partner-level proceeding and which should be resolved at the partnership level.
Read the court’s order here:
12-562 U.S. v. Woods
In a memorandum opinion, the Tax Court has held that a taxpayer’s 17 years of losses in the horse-breeding business was not an activity motivated by profit under IRC §183. The taxpayer’s deductions attributable to the activity were disallowed and a substantial underpayment penalty was imposed.
Read the opinion here:
Dodds v. Commissioner, T.C. Memo. 2013-76