The United States Supreme Court has struck down the Defense of Marriage Act (DOMA) as an unconstitutional violation of the “equal liberty” protections of the 5th Amendment.
The dispute in U.S. v. Windsor began when Edie Windsor filed a claim for refund of estate taxes paid after the death of her same-sex spouse, Thea Spyer. Though the court makes little mention of the $353,053 refund claim in its historic opinion, the high court’s ruling affirmed the Second Circuit Court of Appeals’ decision to award the refund.
Read the entire opinion here:
U.S. v. Windsor, Docket No. 12-307 (U.S.S.C. June 26, 2013)
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 Second Circuit Court of Appeals has affirmed the ruling of the U.S. District Court for the Southern District of New York that Clause 3 of the Defense of Marriage Act (DOMA) is unconstitutional.
The case originated with a refund claim for overpaid estate taxes. Edie Windsor and Thea Spyer were a married homosexual couple from New York. Upon Thea’s death, Edie paid $363,053 in federal estate taxes because she was not eligible for the unlimited marital deduction under IRC Section 2056(a) – a benefit routinely applied to married couples of different sexes. When Edie’s claim for refund of the estate taxes was denied she filed a refund action in U.S. District Court.
The trial court held that DOMA denied Ms. Windsor equal protection under the law as guaranteed by the 5th Amendment to United States Constitution. The three judge appellate panel agreed. It added that “homosexuals have suffered a history of discrimination” and thus the proper legal standard for determining Constitutional protections is intermediate scrutiny. The court held that DOMA could not meet that standard and thus Edie’s 5th Amendment right to equal protection under the law was violated when the provisions of the Internal Revenue Code applied differently to her than to other surviving spouses.
Read the opinion here:
Windsor v. U.S., No. 12-2335 (2d Cir. Oct. 12, 2012)
In a case that begin with a claim for a refund of estate taxes paid, Judge Barbara S. Jones of the Southern District of New York ruled that the Defense of Marriage Act (DOMA) is unconstitutional under the Equal Protection Clause of the 5th Amendment.
Edie Windsor and Thea Spyer were a couple for over 40 years and in 2007 were married in Canada where same-sex marriage was legal. Their marriage was later recognized in their home state of New York. Upon Thea’s death, Edie paid $363,053 in federal estate taxes because she was not eligible for the unlimited marital deduction under IRC Section 2056(a) – a benefit routinely applied to married couples of different sexes. Edie filed a claim for refund of the estate taxes on the grounds that DOMA denied her equal protection under the law as protected by the 5th Amendment to United States Constitution.
Frequent readers know that when possible we like to note interesting procedural aspects of the cases we feature here and this cases qualifies in two aspects. First, was the question of the parties. The case was filed in November of 2010. In February of 2011, Attorney General Eric Holder announced that the Department of Justice would not defend the constitutionality of DOMA. Given that DOJ would no longer defend the suit, the Bipartisan Legal Advisory Group (BLAG) of the U.S. House of Representatives moved to intervene under F.R.C.P. 24 and defend the matter in the place of the Department of Justice. The group’s order was granted. Thus, the parties to the final order were Ms. Windsor as plaintiff and BLAG as defendant-intervenor.
The second interesting procedural note before the court was Edie’s standing to bring the suit. Standing generally requires three elements: (1) an injury in fact, (2) a causal connection between the defendant and the injury, and (3) a means of remedy within the power of the court. The defendant-intervenor argued that Ms. Windsor did not satisfy the second of these elements. The court disagreed noting the State of New York’s recognition of Edie and Thea’s marriage at the time of death as a factor in its finding.
On the ultimate question, the District Court granted Ms. Windsor’s motion on summary judgment ruling that section 3 of DOMA was unconstitutional because it failed to establish a rational basis for advancing a legitimate government under the Equal Protection Clause. The court ordered a that Edie’s refund claim be paid with interest.
Read the entire opinion here:
Windsor v. U.S., No. 10-cv-08435 (SDNY June 6, 2012)
The U.S. District Court for the Eastern District of California has issued an order allowing the Internal Revenue Service to serve a John Doe Summons on the California State Board of Equalization. A John Doe Summons is defined by Section 7609(f) of the Internal Revenue Code and is used by the IRS to gather information from a third party about a class or group of taxpayers suspected of not complying with the internal revenue laws. It is called a John Doe Summons because the IRS doesn’t know the specific names of the alleged violators but is seeking to identify them through the summons process. John Doe Summons have been used to implicate taxpayers in domestic and international tax-advantaged transactions with banks like Wachovia, HSBC and UBS.
In this particular matter, the Internal Revenue Service is seeking information about the transfer of real estate between family members for less than full value. The IRS believes that such transfers are being used to avoid Federal Gift Tax liabilities. The investigation is most likely to affect decedents who passed away in 2010 or before and whose final Federal Estate Tax Return has not yet been filed or is still subject to audit because the lifetime gift tax exclusion for those years was only $1 million. The lifetime exclusion for 2011 and 2012 is more a robust $5 million dollars. Nonetheless, a Federal Gift Tax Return, Form 709, is required in any year which a gift of more than $13,000 is made. Failure to file a gift tax return is subject to a Section 6651 penalty.
The IRS targeted the California State Board of Equalization because it receives records of all California real property transfers to ensure compliance with Proposition 13, the well known California voter initiative which limits annual property tax assessment increases. The judge found that the IRS satisfied the technical requirements to serve the summons and ordered enforcement. The California BOE likely will be turning over the records at the beginning of the new year and you can expect the IRS to start initiating examinations based on what it collects sometime on 2012.
Read the order and memorandum here:
In the Matter of the Tax Liabilities of John Does, No. 2:10-mc-00130-MCE-EFB, (E.D. CA, December 15, 2011)
In a division opinion, the Tax Court ruled that the beneficiary of an estate who signed the estate tax return and held property of the estate, but had not been appointed executor under state law, was the statutory executor of the estate under IRC Sec. 2203 for purposes of receiving and responding to a statutory notice of deficiency. As such, the Tax Court has jurisdiction to review the estate’s petition.
In an interesting practice note, the opinion also offered the parties guidance on the difference between a motion to dismiss and a motion for summary judgment under the Tax Court rules.
Read the opinion here:
Estate of Gudie, 137 T.C. No. 13 (2011)
In a decision that prompted a 20 page dissent, the Second Circuit reverses the Tax Court on the application of Section 2036 to the transfer of a 49% interest in a home that the donor continued to occupy.
Estate of Stewart v. Commissioner, Docket 07-5370-ag (2d Cir. August 9, 2010)
For additional commentary click here.
The Tax Court rejected the government’s beneficial ownership argument and found that petitioner did not have a property interest in income producing warehouses at death. Thus, the value of the those warehouses was not includable in his estate for estate tax purposes under Section 2031.
Estate of Fortunato v. Commissioner, T.C. Memo 2010-105