At long last, on April 4, 2014, nearly 10 months after the U.S. Supreme Court decision in United States v. Windsor, the IRS has released guidance on the effective date by which qualified plans must recognize same-sex marriages for purposes of benefits under the plans. The Guidance is found in Notice 2014 19 and the FAQs posted on the IRS's website.
In the Windsor decision, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act ("DOMA"). Section 3 of DOMA specifically prohibited the recognition of same-sex marriages for all federal law purposes. As a consequence, prior to Windsor, same-sex spouses were denied many of the tax benefits provided to opposite sex spouses, including those under qualified plans, even if the couple was married and residing in a state which otherwise recognized same-sex marriages for state law purposes. As a result of Windsor, plans are now required to extend benefits to same-sex spouses.
Previously, the IRS issued Revenue Ruling 2013-17 relating to Windsor. Under Revenue Ruling 2013-17, the IRS stated that, effective September 16, 2013, the IRS would recognize same-sex marriages based upon the state of celebration (that is: the state in which the marriage ceremony occurred), rather than the state of the same-sex couple's domicile. Therefore, for federal tax purposes, a couple is recognized as married for federal tax purposes if they are married in a state in which same-sex marriage is recognized, regardless of where the couple resides.
The IRS further stated that domestic partnerships, civil unions and similar formalized relationships which are not accorded the same treatment as a marriage under state law would not be recognized for federal tax purposes. For purposes of qualified plans, what this means is that any spousal rights or benefits that are mandated under the Internal Revenue Code must be provided to same-sex spouses such as:
Notice 2014 19 and the FAQs provide further guidance on how and when qualified plans must comply with the new same-sex spousal rules and requirements.
The New Guidance:
Under IRS Notice 2014-19, the IRS stated:
It is important to note that the IRS only addresses tax qualification issues. What this means is that the guidance will not necessarily provide relief from individual claims that a same-sex spouse may assert against the plan seeking to obtain benefits prior to the Windsor decision or based upon the Notice.
For further information, plan sponsors should review Revenue Ruling 2013-17 and the FAQs posted by the IRS.