The IRS and Same Sex Couples Estates

The Internal Revenue Service has issued a notice outlining special procedures for handling the estates of same-sex couples.

Notice 2017-15 provides special administrative procedures for allowing same-sex couples and the executors of their estates to recalculate the taxpayer’s remaining applicable exclusion amount and remaining gift-skipping tax exemption when transfers were made during their marriage.

The notice provides guidance on the application of the Supreme Court’s landmark 2013 decision in the case of U.S. v. Windsor, along with a subsequent revenue ruling issued by the IRS in response to the decision related to gifts, bequests and generation-skipping transfers by same-sex spouses.

For the applicable exclusion amount that is applied to a transfer between spouses who did not qualify for the marital deduction for federal estate or gift tax purposes at the time of the transfer because of the Defense of Marriage Act, the 1996 law that was ruled unconstitutional by the Supreme Court in the Windsor decision, the IRS said taxpayers will be permitted to establish the transfer’s qualification for the marital deduction and to recover the applicable exclusion amount previously applied on a return by reason of such a transfer, even if the limitations period applicable to that return for the assessment of tax or for claiming a credit or refund of tax has expired.

If, however, qualification for the marital deduction or a reverse qualified terminable interest property (QTIP) election would require a QTIP, qualified domestic trust (QDOT), or reverse QTIP election, taxpayers will have to ask for the relief to make such an election.

As for a taxpayer’s GST exemption that was allocated to transfers made before the court’s recognition of same-sex marriages for federal tax purposes, for the benefit of anyone in a same-sex marriage or who would inherit from the couple, certain exemption allocations to transfers to those people now recognized to be “non-skip persons” will be considered void. Accordingly, taxpayers who made such a transfer will be permitted to recalculate the amount of their remaining GST exemption.

If you need help in tax issues or tax preparation, contact our office at:  877.778.1770