[Federal Register Volume 81, Number 171 (Friday, September 2, 2016)]
[Rules and Regulations]
[Pages 60609-60617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21096]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 26, 31, and 301
[TD 9785]
RIN 1545-BM10
Definition of Terms Relating to Marital Status
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that reflect the
holdings of Obergefell v. Hodges, 576 U.S. ___, 135 S. Ct. 2584 (2015),
Windsor v. United States, 570 U.S. ___, 133 S. Ct. 2675 (2013), and
Revenue Ruling 2013-17 (2013-38 IRB 201), and that define terms in the
Internal Revenue Code describing the marital status of taxpayers for
federal tax purposes.
DATES: Effective date: These regulations are effective on September 2,
2016.
FOR FURTHER INFORMATION CONTACT: Mark Shurtliff at (202) 317-3400 (not
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1), the Estate Tax Regulations (26 CFR part 20), the Gift Tax
Regulations (26 CFR part 25), the Generation-Skipping Transfer Tax
Regulations (26 CFR part 26), the Employment Tax and Collection of
Income Tax at Source Regulations (26 CFR part 31), and the Regulations
on Procedure and Administration (26 CFR part 301).
On October 23, 2015, the Department of the Treasury (Treasury) and
the IRS published in the Federal Register (80 FR 64378) a notice of
proposed rulemaking (REG-148998-13), which proposed to amend the
regulations under section 7701 of the Internal Revenue Code (Code) to
provide that, for federal tax purposes, the terms ``spouse,''
``husband,'' and ``wife'' mean an individual lawfully married to
another individual, and the term ``husband and wife'' means two
individuals lawfully married to each other. In addition, the proposed
regulations provided that a marriage of two individuals will be
recognized for federal tax purposes if that marriage would be
recognized by any state, possession, or territory of the United States.
Finally, the proposed regulations clarified that the term ``marriage''
does not include registered domestic partnerships, civil unions, or
other similar relationships recognized under state law that are not
denominated as a marriage under that state's law, and the terms
``spouse,'' ``husband and wife,'' ``husband,'' and ``wife'' do not
include individuals who have entered into such a relationship.
Written comments responding to the proposed regulations were
received, and one person requested a public hearing. A public hearing
was held on January 28, 2016; however, the individual who requested the
hearing was not able to attend, but did submit supplemental comments.
When given the opportunity, no one who attended the hearing asked to
speak. After consideration of the
[[Page 60610]]
comments, Treasury and the IRS adopt the proposed regulations as
revised by this Treasury Decision.
Summary of Comments and Explanation of Revisions
The IRS received twelve comments in response to the notice of
proposed rulemaking. All comments were considered and are available for
public inspection at http://www.regulations.gov. The comments are
summarized and discussed in this preamble.
I. Comments on the Proposed Regulations Generally
The majority of commenters strongly supported the proposed
regulations. Many commended Treasury and the IRS for publishing
proposed regulations that reflect the holdings of Obergefell v. Hodges,
576 U.S. ___, 135 S. Ct. 2584 (2015), and Windsor v. United States, 570
U.S. ___, 133 S. Ct. 2675 (2013), instead of relying on sub-regulatory
guidance. In general, commenters applauded Treasury and the IRS for
determining that, in light of the Windsor and Obergefell holdings,
marriages of same-sex couples should be treated the same as marriages
of opposite-sex couples for federal tax purposes.
One commenter suggested that the regulations specifically reference
``same-sex marriage'' so that the definitions apply regardless of
gender and to avoid any potential issues of interpretation. Treasury
and the IRS believe that the definitions in the proposed regulations
apply equally to same-sex couples and opposite-sex couples, and that no
clarification is needed. Proposed Sec. 301.7701-18(a) states, without
qualification, that, ``[f]or federal tax purposes, the terms spouse,
husband, and wife mean an individual lawfully married to another
individual,'' and that the ``term husband and wife means two
individuals lawfully married to each other.'' The language is
specifically gender neutral, which reflects the holdings in Windsor and
Obergefell and is consistent with Revenue Ruling 2013-17. Similarly,
the language in proposed Sec. 301.7701-18(b) refers to a marriage of
two individuals, without specifying gender. Amending the regulations to
specifically address a marriage of two individuals of the same sex
would undermine the goal of these regulations to eliminate distinctions
in federal tax law based on gender. For these reasons, the final
regulations do not adopt this comment.
One comment reflected an overall negative view of same-sex
marriage. However, the comment did not recommend any specific amendment
to the proposed regulations. Because this comment addresses issues
outside the scope of these regulations, the final regulations do not
address this comment.
II. Comments on Proposed Sec. 301.7701-18(a) Regarding the Definition
of Terms Relating to Marital Status
Section 301.7701-18(a) of the proposed regulations provides that
for federal tax purposes, the terms ``spouse,'' ``husband,'' and
``wife'' mean an individual lawfully married to another individual. The
term ``husband and wife'' means two individuals lawfully married to
each other. The preamble to the proposed regulations explains that
after Windsor and Obergefell, marriages of couples of the same sex
should be treated the same as marriages of couples of the opposite sex
for federal tax purposes, and therefore, the proposed regulations
interpret these terms in a neutral way to include same-sex as well as
opposite-sex couples.
The overwhelming majority of commenters expressed support for
proposed Sec. 301.7701-18(a). However, one of the commenters
recommended that the IRS update all relevant forms to use the gender-
neutral term ``spouse'' instead of ``husband and wife.'' The commenter
stated that updating the forms to use gender-neutral terms would be
cost-neutral and would more accurately reflect the varied composition
of today's families. The commenter further stated that updating the
forms to be inclusive of same-sex couples would increase government
efficiency by alleviating confusion, delays, and denials caused by
current forms using outdated terms.
The commenter's recommendation relates to forms and is therefore
outside the scope of these final regulations. Nevertheless, Treasury
and the IRS will consider the commenter's recommendation when updating
IRS forms and publications.
III. Comments on Proposed Sec. 301.7701-18(b) Regarding Persons Who
Are Married for Federal Tax Purposes
Section 301.7701-18(b) of the proposed regulations provides that a
marriage of two individuals is recognized for federal tax purposes if
the marriage would be recognized by any state, possession, or territory
of the United States. The comments received on paragraph (b) are
summarized below.
A. Comment That Proposed Sec. 301.7701-18(b) is Redundant in Light of
Obergefell and Should be Removed
One commenter stated that proposed Sec. 301.7701-18(b) is
redundant and unnecessary in light of Obergefell. According to the
commenter, after Obergefell, same-sex marriage should be recognized in
every state. Therefore, the commenter states that there is no need for
a definition of marriage for federal tax purposes and proposed Sec.
301.7701-18 (b) should not be finalized.
Treasury and the IRS disagree that proposed Sec. 301.7701-18(b) is
unnecessary in light of Obergefell. The purpose of publishing these
regulations is to ensure that, regardless of the term used in the Code,
a marriage between two individuals entered into in, and recognized by,
any state, possession, or territory of the United States will be
treated as a marriage for federal tax purposes. The majority of
comments supporting the proposed regulations agree with this view and
specifically applaud Treasury and the IRS for publishing regulations to
make this clear rather than relying on sub-regulatory guidance.
Accordingly, the comment is not adopted and a definition of marriage
for federal tax purposes is included in the final regulations under
Sec. 301.7701-18(b). However, the definition in proposed Sec.
301.7701-18(b) is amended by these final regulations, as described
below.
B. Comment That the Language in the Proposed Rule Should be Clarified
To Eliminate Unintended Consequences
Another commenter recommended amending Sec. 301.7701-18(b) of the
proposed regulations to simply state that the determination of an
individual's marital status will be made under the laws of the relevant
state, possession, or territory of the United States or, where
appropriate, under the laws of the relevant foreign country (for
example, the country where the marriage was celebrated or, if conflict
of laws questions arise, another country). The commenter pointed out
that this revision is needed to ensure that a couple's intended marital
status is recognized by the IRS. Specifically, the commenter explains
that the language in proposed Sec. 301.7701-18(b) makes it possible
for unmarried couples living in a state that does not recognize common-
law marriage to be treated as married for federal tax purposes if the
couple would be treated as having entered into a common-law marriage
under the law of any state, possession, or territory of the United
States.
Next, the commenter explains that the language of the proposed
regulations could result in questions about the validity of a divorce.
Under Revenue Ruling 67-442, a divorce is recognized for federal tax
purposes unless the divorce is invalidated by a court of
[[Page 60611]]
competent jurisdiction. The language of the proposed regulations would
undermine this longstanding revenue ruling if any state would recognize
the couple as still married despite the divorce.
Finally, the commenter states that the language of proposed Sec.
301.7701-18(b) could create a conflict with proposed Sec. 301.7701-
18(c) if at least one state, possession, or territory of the United
States recognizes a couple's registered domestic partnership, civil
union, or other similar relationship as marriage. The commenter points
out that in such a situation, regardless of the couple's intention and
where they entered into their alternative legal relationship, they
could be treated as married for federal tax purposes under the language
of proposed Sec. 301.7701-18(b) if any state, possession, or territory
recognizes their alternative legal relationship as a marriage.
According to the commenter, these examples demonstrate that the
language in proposed Sec. 301.7701-18(b) could be interpreted to treat
couples who divorce or who never intended to enter into a marriage
under the laws of the state where they live or where they entered into
an alternative legal relationship as married for federal tax purposes.
Without a change to proposed Sec. 301.7701-18(b), these couples would
be required to analyze the laws of all the states, possessions, and
territories of the United States to determine whether any of these laws
would fail to recognize their divorce or would denominate their
alternative legal relationship as a marriage
This was not the intent of the proposed regulations. Rather, the
proposed regulations were intended to recognize a marriage only when a
couple entered into a relationship denominated as marriage under the
law of any state, territory, or possession of the United States or
under the law of a foreign jurisdiction if such a marriage would be
recognized by any state, possession, or territory of the United States.
To address these concerns, Sec. 301.7701-18(b) is revised in the final
regulations to provide a general rule for recognizing a domestic
marriage for federal tax purposes and a separate rule for recognizing
foreign marriages for federal tax purposes (discussed in section III.C.
Comments on Marriages Entered Into in Foreign Jurisdictions of this
preamble).
Accordingly, under the general rule in Sec. 301.7701-18(b)(1) of
the final regulations, a marriage of two individuals is recognized for
federal tax purposes if the marriage is recognized by the state,
possession, or territory of the United States in which the marriage is
entered into, regardless of the married couple's place of domicile.
This revision addresses the concerns raised by the commenter and
ensures that only couples entering into a relationship denominated as
marriage, and who have not divorced, are treated as married for federal
tax purposes. By relying on the place of celebration to determine which
state, possession, or territory of the United States is the point of
reference for determining whether a couple is married for federal tax
purposes, this rule is consistent with the longstanding position of
Treasury and the IRS regarding the determination of marital status for
federal tax purposes. See Revenue Ruling 2013-17; Revenue Ruling 58-66
(1958-1 CB 60).
C. Comments on Marriages Entered Into in Foreign Jurisdictions
Section 301.7701-18(b) of the proposed regulations generally
provides that a marriage of two individuals is recognized for federal
tax purposes if the marriage would be recognized by any state,
possession, or territory of the United States. The preamble to the
proposed regulations explains that under this rule, as a matter of
comity, a marriage conducted in a foreign jurisdiction will be
recognized for federal tax purposes if that marriage would be
recognized in at least one state, possession, or territory of the
United States. The rule in Sec. 301.7701-18(b) of the proposed
regulations was intended to address both domestic and foreign
marriages, regardless of where the couple is domiciled and regardless
of whether the couple ever resides in the United States (or a
possession or territory of the United States). One commenter suggested
amending the proposed regulation to recognize marriages performed in
any foreign jurisdiction, for federal tax purposes, if the marriage is
recognized in at least one state, possession, or territory of the
United States. Similarly, another commenter recommended amending the
proposed regulation to reflect the discussion in the preamble to the
proposed regulation regarding the recognition of marriages conducted in
foreign jurisdictions. This commenter noted that the preamble to the
proposed regulation states, ``[W]hether a marriage conducted in a
foreign jurisdiction will be recognized for federal tax purposes
depends on whether that marriage would be recognized in at least one
state, possession, or territory of the United States.'' The commenter
recommended that, rather than relying on the preamble, language should
be included in the regulations' text making this recognition explicit.
Proposed Sec. 301.7701-18(b) was drafted to apply to both domestic
and foreign marriages. In light of the comments, the proposed rule has
been amended to be more explicit. To clarify how foreign marriages will
be recognized for federal tax law, Sec. 301.7701-18(b) has been
amended to provide a specific rule for foreign marriages. Accordingly,
a new paragraph (b)(2) has been added to Sec. 301.7701-18 to provide
that two individuals entering into a relationship denominated as
marriage under the laws of a foreign jurisdiction are married for
federal tax purposes if the relationship would be recognized as
marriage under the laws of at least one state, possession, or territory
of the United States. This rule enables couples who are married outside
the United States to determine marital status for federal tax purposes,
regardless of where they are domiciled and regardless of whether they
ever reside in the United States. Although this rule requires couples
to review the laws of the various states, possessions, and territories
to determine if they would be treated as married, it is sufficient if
they would be treated as married in a single jurisdiction and there is
no need to consider the laws of all of the states, territories, and
possessions of the United States. In addition, unlike the language in
Sec. 301.7701-18(b) of the proposed regulations, this rule
incorporates the place of celebration as the reference point for
determining whether the legal relationship is a marriage or a legal
alternative to marriage, avoiding the potential conflict with Sec.
301.7701-18(c) identified by the commenter, above. Finally, this rule
avoids the concern that a couple intending to enter into a legal
alternative to marriage will be treated as married because this rule
recognizes only legal relationships denominated as marriage under
foreign law as eligible to be treated as marriage for federal tax
purposes. This separate rule for foreign marriages in Sec. 301.7701-
18(b)(2) is consistent with the proposed regulations' intent, as
described in the preamble to the notice of proposed rulemaking, and
provides the clarity commenters request.
D. Comment on Common-Law Marriages
One commenter stated that some states that recognize common-law
marriage only do so in the case of opposite-sex couples. Accordingly,
the commenter recommended amending the regulations to clarify that
common-law marriages of same-sex couples will be recognized for federal
tax purposes. The
[[Page 60612]]
commenter further suggested that any same-sex couple that would have
been considered married under the common law of a state but for the
fact that the state's law prohibited same-sex couples from being
treated as married under common law be allowed to file an amended
return for any open tax year to claim married status.
As discussed in the preamble to the proposed regulations, on June
26, 2013, the Supreme Court in Windsor held that Section 3 of the
Defense of Marriage Act, which generally prohibited the federal
government from recognizing marriages of same-sex couples, is
unconstitutional because it violates the principles of equal protection
and due process. On June 26, 2015, the Supreme Court held in Obergefell
that state laws are ``invalid to the extent they exclude same-sex
couples from civil marriage on the same terms and conditions as
opposite-sex couples'' and ``that there is no lawful basis for a State
to refuse to recognize a lawful same-sex marriage performed in another
State on the ground of its same-sex character.'' Obergefell, 576 U.S.
at _(slip op., at 23, 28).
In light of these holdings, Treasury and the IRS determined that
marriages of couples of the same sex should be treated the same as
marriages of couples of the opposite sex for federal tax purposes. See
80 FR 64378, 64379. Neither the proposed regulations nor these final
regulations differentiate between civil marriages and common-law
marriages, nor is such differentiation warranted or required for
federal tax purposes. See Revenue Ruling 58-66 (treating common-law
marriage as valid, lawful marriage for federal tax purposes) and
Revenue Ruling 2013-17 (reiterating that common-law marriages are
valid, lawful marriages for federal tax purposes). Thus, the general
rules regarding marital status for federal tax purposes provided in the
proposed and final regulations address marital status regardless of
whether the marriage is a civil marriage or a common-law marriage.
Furthermore, even after the Obergefell decision, there are several
states, including some states that recognize common-law marriage, that
still have statutes prohibiting same-sex marriage. However, after
Obergefell, we are unaware of any state enforcing such statutes or
preventing a couple from entering into a common-law marriage because
the couple is a same-sex couple. Accordingly, the commenter's
suggestion has not been adopted.
In addition, Revenue Ruling 2013-17 does not distinguish between
civil marriages and common-law marriages of same-sex couples.
Therefore, same-sex couples in common-law marriages may rely on Revenue
Ruling 2013-17 for the purpose of filing original returns, amended
returns, adjusted returns, or claims for credit or refund for any
overpayment of tax resulting from the holdings of Revenue Ruling 2013-
17 and the definitions provided in these regulations, provided the
applicable limitations period for filing such claim under section 6511
has not expired.
IV. Comments on Proposed Sec. 301.7701-18(c) Regarding Persons Who are
not Married for Federal Tax Purposes
Section 301.7701-18(c) of the proposed regulations provides that
the terms ``spouse,'' ``husband,'' and ``wife'' do not include
individuals who have entered into a registered domestic partnership,
civil union, or other similar relationship not denominated as marriage
under the law of a state, possession, or territory of the United
States. That section further provides that the term ``husband and
wife'' does not include couples who have entered into such a
relationship and that the term ``marriage'' does not include such
relationship.
The preamble to the proposed regulations provides several reasons
for the rule in proposed regulation Sec. 301.7701-18(c). First, except
when prohibited by statute, the IRS has traditionally looked to states
to define marriage. Second, regardless of rights accorded to
relationships such as civil unions, registered domestic partnerships,
and similar relationships under state law, states have intentionally
chosen not to denominate those relationships as marriage. Third, some
couples deliberately choose to enter into or remain in a civil union,
registered domestic partnership, or similar relationship even when they
could have married or converted these relationships to marriage, and
these couples have an expectation that their relationship will not be
treated as marriage for purposes of federal tax law. Finally, no Code
provision indicates that Congress intended to recognize civil unions,
registered domestic partnerships, or similar relationships as
marriages. Several commenters submitted comments addressing this
section of the proposed regulations. Many agreed with proposed Sec.
301.7701-18(c), but three did not. These comments are discussed below.
A. Comments That Specifically Agree With Proposed Regulation Sec.
301.7701-18(c)
In addition to the four commenters that expressed strong support
for the proposed regulations generally, two commenters provided
specific comments agreeing with the position taken in proposed Sec.
301.7701-18(c). One of these commenters stated that because no Code
section requires, or even permits, Treasury and the IRS to allow
individuals in registered domestic partnerships, civil unions, and
other similar relationships, to elect a married filing status under
section 6013, any extension of section 6013 is a policy choice that
Congress should make. This commenter also noted that to evaluate the
rights and obligations created by various state legal relationships to
determine if they are the same as relationships denominated as a
marriage would be a significant drain on IRS resources. Finally, the
commenter provided historical examples demonstrating how states have
attempted to change state family law to reduce their residents' federal
income tax obligations. Based on this historical analysis, the
commenter concluded that if Treasury and the IRS were to reverse their
position on the status of registered domestic partnerships, civil
unions, and other similar relationships, there would be nothing to
prevent states from permitting a private contract to create an
equivalent state-law marriage to enable their residents to choose a
filing status that reduces their federal income tax obligations.
The second commenter that agreed with proposed Sec. 301.7701-18(c)
observed that the proposed regulations respect the choices made by
couples who entered into a civil union or registered domestic
partnership with the expectation that their relationship will not be
treated as a marriage for federal law purposes. The commenter also
observed that the proposed regulations recognize that couples
deliberately remain in these relationships, rather than marry, for
lawful reasons.
B. Comments That Disagree With Proposed Regulation Sec. 301.7701-18(c)
Three commenters disagreed with the proposed regulations, stating
that registered domestic partnerships, civil unions, and similar formal
relationships should be treated as marriage for federal tax purposes.
Their comments are summarized below.
1. Comments Regarding Relationships With the Same Rights and
Responsibilities as Marriage
Two of the commenters recommended that the substance of the legal
rights and obligations of individuals in registered domestic
partnerships, civil unions, and similar relationships should control
whether these relationships are
[[Page 60613]]
recognized as marriage for federal tax purposes, rather than the label
applied to the relationship. These commenters stated that regardless of
whether a relationship is denominated as marriage, any relationship
that has the same rights and responsibilities as marriage under state
law should be treated as marriage for federal tax purposes. One
commenter cited registered domestic partners in California as an
example of a relationship not denominated as marriage but with the same
rights and responsibilities as marriage under state law. Another
commenter cited civil unions in New Jersey and Connecticut as an
example of a relationship not denominated as marriage where the couple
has the same rights and obligations as spouses.
While some states extend the rights and responsibilities of
marriage to couples in registered domestic partnerships, civil unions,
or other similar relationships, as the commenters point out, these
states also retain marriage as a separately denominated legal
relationship. We also recognize that some states have permitted couples
in those relationships to convert them to marriage under state law.
Many of those states have continued to designate marriage separately
from alternative legal relationships that are not a marriage, such as
registered domestic partnerships, civil unions, or other similar
relationships.
The IRS has traditionally recognized a couple's relationship as a
marriage if the state where the relationship was entered into
denominates the relationship as a marriage. See Revenue Ruling 58-66
(if a state recognizes a common-law marriage as a valid marriage, the
IRS will also recognize the couple as married for purposes of federal
income tax filing status and personal exemptions). Similarly, the IRS
has not traditionally evaluated the rights and obligations provided by
a state to determine if an alternative legal relationship should be
treated as marriage for federal tax purposes.
Adopting the commenters' recommendation to treat registered
domestic partnerships, civil unions, and similar relationships as
married for federal tax purposes if the couple has the same rights and
responsibilities as individuals who are married under state law would
be inconsistent with Treasury and the IRS's longstanding position to
recognize the marital status of individuals as determined under state
law in the administration of the federal income tax. This position is,
moreover, consistent with the reasoning of the only federal court that
has addressed whether registered domestic partners should be treated as
spouses under the Code. See Dragovich v. U.S. Dept. of Treasury, 2014
WL 6844926 (N.D. Cal. Dec. 4, 2014) (on remand following dismissal of
appeal by the Ninth Circuit, 12-16628 (9th Cir. Oct. 28, 2013))
(granting government's motion to dismiss claim that section 7702B(f)
discriminates because it does not interpret the term spouse to include
registered domestic partners).
In addition, it would be unduly burdensome for the IRS to evaluate
state laws to determine if a relationship not denominated as marriage
should be treated as a marriage. It would be also be burdensome for
taxpayers in these alternative legal relationships, to evaluate state
law to determine marital status for federal tax purposes. Besides being
burdensome, the determination of whether the relationship should be
treated as a marriage could result in controversy between the IRS and
the affected taxpayers. This can be avoided by treating a relationship
as a marriage only if a state denominates the relationship as a
marriage, as the IRS has traditionally done.
2. Comments Regarding Deference to State Law
Two of the commenters stated that by not recognizing registered
domestic partnerships, civil unions, and other similar relationships as
marriage for federal tax purposes, the IRS is disregarding the states'
intent in creating these alternative legal relationships rather than
deferring to state law.
To illustrate, one of the commenters noted that Illinois affords
parties to a civil union the same rights and obligations as married
spouses, and that when Illinois extended marriage to same-sex couples,
it enacted a statutory provision permitting parties to a civil union to
convert their union to a marriage during the one-year period following
the law's enactment. 750 Ill. Comp. Stat. Sec. 75/65 (2014). The
Illinois law also provides that, for a couple converting their civil
union to a marriage, the date of marriage relates back to the date the
couple entered into the civil union. The commenter stated that the fact
that couples could convert their civil union to a marriage, and that
the date of their marriage would relate back to the date of their
union, indicates that Illinois defines civil unions as marriages.
The commenter further observed that when Delaware extended the
right to marry to same-sex couples, it stopped allowing its residents
to enter into civil unions. Following a one-year period during which
couples could voluntarily convert their civil union into marriage,
Delaware automatically converted into marriage all remaining civil
unions (except those subject to a pending proceeding for dissolution,
annulment or legal separation), with the date of each marriage relating
back to the date that each civil union was established. The commenter
concluded that the laws in Delaware and Illinois make it clear that by
not recognizing civil unions and domestic partnerships as marriage, the
IRS is not deferring to the state's judgment in defining marital
status.
Rather than support the commenter's position, these examples
actually support proposed Sec. 301.7701-18(c). As discussed in the
preamble to the proposed regulations, states have carefully considered
which legal relationships will be recognized as a marriage and which
will be recognized as a legal alternative to marriage, and have enacted
statutes accordingly. For instance, Illinois did not automatically
convert all civil unions into marriages or include civil unions in the
definition of marriage. Instead, it allowed couples affected by the new
law to either remain in a civil union or convert their civil union into
a marriage. Furthermore, under Illinois law, couples who waited longer
than one year to convert their civil union into marriage must perform a
new ceremony and pay a fee to have their civil union converted into and
be recognized as a marriage. Moreover, Illinois continues to allow both
same-sex couples and opposite-sex couples to enter into civil unions,
rather than marriages.
The law in Delaware also demonstrates the care that states have
taken to determine which legal relationships will be denominated as
marriage. In 2014, Delaware law eliminated the separate designation of
civil union in favor of recognizing only marriages for couples who want
the legal status afforded to couples under state law. On July 1, 2014,
Delaware automatically converted all civil unions to marriage by
operation of law. Del. Code Ann. tit. 13, Sec. 218(c). Civil unions
that were subject to a pending proceeding for dissolution, annulment,
or legal separation as of the date the law went into effect, however,
were not automatically converted. As a result, these couples are not
treated as married under Delaware law, and the dissolution, annulment,
or legal separation of their civil union is governed by Delaware law
relating to civil unions rather than by Delaware law relating to
marriage. Del. Code Ann. tit. 13, Sec. 218(d).
[[Page 60614]]
As these examples demonstrate, states have carefully determined
which relationships will be denominated as marriage. In addition,
states may retain alternatives to marriage even after allowing couples
to convert those relationships to marriage. IRS's reliance on a state's
denomination of a relationship as marriage to determine marital status
for federal tax purposes avoids inconsistencies with a state's intent
regarding the status of a couple's relationship under state law.
3. Comments Regarding Taxpayer Expectations
As explained in the notice of proposed rulemaking, some couples
have chosen to enter into a civil union or registered domestic
partnership even when they could have married. In addition, some
couples who are in civil unions or registered domestic partnerships
have chosen not to convert those relationships into marriage when they
had the opportunity to do so. In many cases, the choice not to enter
into a relationship denominated as marriage was deliberate, and may
have been made to avoid treating the relationship as marriage for
purposes of federal law, including federal tax law.
Two commenters stated that taxpayer expectations do not support
Sec. 301.7701-18(c). According to the commenters, many same-sex
couples entered into a domestic partnership or civil union because at
the time they were prohibited under state law from marrying. According
to the commenters, now that they have the option to marry, some of
these couples have remained in domestic partnerships or civil unions
not by choice, but because one member of the couple has died, has
become incapacitated, or otherwise lacks the capacity to enter into a
marriage. One of the commenters stated that these couples are trapped
in this alternative legal relationship and have no ability to marry,
even if they have an expectation that their relationship be treated as
a marriage for federal tax purposes. The other commenter pointed out
that some taxpayers may have resisted entering into or converting their
relationship into marriage because of a principled opposition to the
marriage institution, but may still have an expectation of being
treated as married for federal tax purposes. Thus, the commenters
conclude, many taxpayers do not voluntarily enter into or remain in
alternative legal relationships because of any particular expectation
that they will not be treated as married for federal purposes.
The commenters stated that even if the type of relationship entered
into represents a decision not to be treated as married for federal
purposes, taxpayer expectations should not be taken into account for
purposes of determining whether alternative legal relationships are
recognized as marriage for federal tax purposes. One commenter stated
that taking taxpayer expectations into account encourages tax-avoidance
behavior. The other commenter stated that it is inappropriate for the
IRS to determine tax policy based on taxpayers' expectations of reaping
nontax benefits, such as Social Security.
However, another commenter, who also disagreed with proposed Sec.
301.7701-18(c), stated the opposite, explaining that non-tax reasons
support treating alternative legal relationships as marriage for
federal tax purposes. According to this commenter, because nationwide
protections for employment and housing are lacking, many same-sex
couples remain at risk for termination at work or eviction from an
apartment if their sexual orientation is discovered. Similarly, the
commenter contends that individuals in the Foreign Service who work
overseas may also feel unsafe entering into a same-sex marriage.
Therefore, the commenter explained, in light of these realities,
registered domestic partnerships, civil unions, and similar
relationships provide a level of stability and recognition for many
couples through federal programs like Social Security, and, therefore,
should be treated as marriages for federal tax purposes. Finally, the
commentator stated that recognizing these relationships as marriages
for federal tax purposes would not impede the IRS's ability to
effectively administer the internal revenue laws.
Treasury and the IRS disagree with the commenters and continue to
believe that the regulation should not treat registered domestic
partnerships, civil unions, and other similar relationships--entered
into in states that continue to distinguish these relationships from
marriages--as marriage for federal tax purposes. While not all same-sex
couples in registered domestic partnerships, civil unions, or similar
relationships had an opportunity to marry when they entered into their
relationship, after Obergefell, same-sex couples now have the option to
marry under state law.
In addition, the fact that some couples may not voluntarily enter
into marriage because of a principled opposition to marriage supports
not treating alternative legal relationships as marriages for federal
tax purposes because this ensures that these couples do not risk having
their relationship characterized as marriage. Further, as discussed in
the preamble to the proposed regulations, treating alternative legal
relationships as marriages for federal tax purposes may have legal
consequences that are inconsistent with these couples' expectations.
For instance, the filing status of a couple treated as married for
federal tax purposes is strictly limited to filing jointly or filing as
married filing separately, which often results in a higher tax
liability than filing as single or head of household. After Obergefell,
a rule that treats a couple as married for federal tax purposes only if
their relationship is denominated as marriage for state law purposes
allows couples in a registered domestic partnership, civil union, or
similar relationship to make a choice: they may either stay in that
relationship and avoid being married for federal tax purposes or they
may marry under state law and be treated as married for federal tax
purposes. The rule recommended by the commenters would eliminate this
choice.
4. Comments Regarding Difficulties Faced by Couples if Alternative
Legal Relationships Are Not Treated as Marriage
Two commenters stated that not recognizing registered domestic
partnerships, civil unions, and other similar relationships as
marriages for federal tax purposes makes it difficult for couples in
these relationships to calculate their federal tax liability. One
commenter explained that when these couples dissolve their
relationships, they are required to go through the same processes that
spouses go through in a divorce; alimony obligations are calculated in
the same way, and property divisions occur in the same way as for
spouses. Yet, because they are not treated as married for federal tax
purposes, these couples cannot rely on the certainty of tax treatment
associated with provisions under the Code such as sections 71 (relating
to exclusion from income for alimony and separate maintenance), 215
(relating to the deduction for alimony or separate maintenance
payments), 414(p) (defining qualified domestic relations orders), 1041
(relating to transfers of property between spouses incident to
divorce), 2056 (relating to the estate tax marital deduction), and 2523
(relating to gifts to spouses).
The purpose of these regulations is to define marital status for
federal tax law purposes. The fact that the Code includes rules that
address transfers of property between individuals who are or were
married should not control how marriage is defined for federal tax
[[Page 60615]]
purposes. Rather, as discussed in this preamble, the regulations are
consistent with the IRS's longstanding position that marital status for
federal tax purposes is determined based on state law. See Revenue
Ruling 2013-17; Revenue Ruling 58-66. Accordingly, the proposed
regulations have not been changed based on this comment. In addition,
although not addressed specifically in the Code, guidance relating to
registered domestic partnerships, civil unions, and other similar
relationships, including answers to frequently asked questions, is
available at www.irs.gov.
5. Comments Regarding the Fact That the Code Does Not Address the
Status of Alternative Legal Relationships
After describing the reasons for not treating civil unions,
registered domestic partnerships, and similar relationships as marriage
for federal tax purposes, the preamble to the proposed regulations
states ``Further, no provision of the Code indicates that Congress
intended to recognize as marriages civil unions, registered domestic
partnerships, or similar relationships.'' That language makes clear
that the Code is silent with respect to alternative legal
relationships, and therefore, does not preclude the IRS from not
recognizing these relationships as marriage for federal tax purposes.
Two commenters took issue with this language and stated that the
government should not interpret the lack of a Code provision
specifically addressing the marital status of legal alternatives to
marriage as an indication of Congressional intent that such
relationships should not be recognized as marriage for federal tax
purposes. In addition, the commenters explained that the reason
Congress did not enact such a provision after DOMA is because it would
have been inconsistent with DOMA's restriction on treating same-sex
couples as married for federal law purposes.
These comments are unpersuasive. Since DOMA was enacted on
September 21, 1996, many states have allowed both same-sex and
opposite-sex couples to enter into registered domestic partnerships,
civil unions, and similar relationships. Although it would have been
inconsistent for Congress to recognize alternative legal relationships
between same-sex couples as marriage under DOMA, nothing prevented
Congress from recognizing these relationships as marriages for federal
tax purposes in the case of opposite-sex couples. Yet, since DOMA was
enacted nearly 20 years ago, Congress has passed no law indicating that
opposite-sex couples in registered domestic partnerships, civil unions,
or similar relationships are recognized as married for federal tax
purposes. Because no Code provision specifically addresses the marital
status of alternative legal relationships for federal tax purposes,
there is no indication that Congress intended to recognize registered
domestic partnerships, civil unions, or similar relationships as
marriage for purposes of federal tax law.
C. Final Regulations Under Sec. 301.7701-18(c)
In sum, Treasury and the IRS received twelve comments with respect
to the proposed regulations. Only three of those comments disagreed
with the approach taken in proposed Sec. 301.7701-18(c), which
provides that registered domestic partnerships, civil unions, and
similar relationships not denominated as marriage by state law are not
treated as marriage for federal tax purposes. Of the nine comments that
supported the proposed regulations, two provided specific reasons why
they agreed with the approach taken in proposed Sec. 301.7701-18(c).
Accordingly, the majority of comments supported the approach taken in
proposed Sec. 301.7701-18(c).
For the reasons discussed above, the points raised by the three
comments that disagreed with the approach taken in proposed Sec.
301.7701-18(c) are not persuasive. Treasury and the IRS believe that
federal tax law should continue to defer to states for the
determination of marital status, and the rule in proposed Sec.
301.7701-18(c) does that. Any other approach would unduly burden the
IRS and taxpayers by requiring an interpretation of multiple state laws
and potential controversy when disagreements arise regarding this
interpretation. In addition, Treasury and the IRS continue to believe
that treating couples in registered domestic partnerships, civil
unions, and similar relationships not denominated as marriage under
state law, as married for federal tax purposes could undermine taxpayer
expectations regarding the federal tax consequences of these
relationships. To provide a rule that concludes otherwise would leave
those couples who choose alternative legal relationships over marriage
without a remedy to avoid the federal tax consequences of being
married. In contrast, couples who wish to be treated as married may do
so after Windsor and Obergefell.
While Sec. 301.7701-18(c) of the regulations will continue to
provide that registered domestic partnerships, civil unions, and other
similar relationships not denominated as marriage under state law are
not recognized as married for federal tax purposes, Sec. 301.7701-
18(c) is revised in the final regulations similar to revisions to Sec.
301.7701-18(b) to account for the place of celebration. As discussed in
section III. Comments on Proposed Sec. 301.7701-18(b) Regarding
Persons Who are Married for Federal Tax Purposes of this preamble, this
change is necessary to ensure that there is a point of reference for
which state law is applicable when determining whether the alternative
legal relationship is recognized as marriage under state law.
Accordingly, Sec. 301.7701-18(c) is revised in the final regulations
to provide that the terms ``spouse,'' ``husband,'' and ``wife'' and
``husband and wife'' do not include individuals who have entered into a
registered domestic partnership, civil union, or other similar
relationship not denominated as a marriage under the law of the state,
possession, or territory of the United States where such relationship
was entered into, regardless of domicile.
V. Comment That the Final Regulations Should Address Community-Property
Issues
One commenter recommended amending the proposed regulations to make
a clear connection between marital status and community property tax
treatment under state law. These regulations provide definitions for
purposes of determining marital status for federal tax law purposes.
These regulations do not provide substantive rules for the treatment of
married or non-married couples under federal tax law. Accordingly,
because the federal tax treatment of issues that arise under community-
property law involves resolution of issues under substantive tax law,
which is outside the scope of these regulations, the commenter's
recommendation is not adopted by these final regulations.
Effect on Other Documents
These final regulations will obsolete Revenue Ruling 2013-17 as of
September 2, 2016. Taxpayers may continue to rely on guidance related
to the application of Revenue Ruling 2013-17 to employee benefit plans
and the benefits provided under such plans, including Notice 2013-61,
Notice 2014-37, Notice 2014-19, Notice 2014-1, and Notice 2015-86 to
the extent they are not modified, superseded, obsoleted, or clarified
by subsequent guidance.
Effective Date
These regulations are effective on September 2, 2016.
[[Page 60616]]
Statement of Availability for IRS Documents
IRS Revenue Procedures, Revenue Rulings notices, notices and other
guidance cited in this preamble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are available from the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402, or by visiting the IRS Web site at http://www.irs.gov.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory impact assessment is
not required. It has also been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations. In addition, because the regulations do not impose a
collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Accordingly, a regulatory
flexibility analysis is not required under the Regulatory Flexibility
Act (5 U.S.C. chapter 6).
Drafting Information
The principal author of these regulations is Mark Shurtliff of the
Office of the Associate Chief Counsel, Procedure and Administration.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 26
Estate, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social Security,
Unemployment compensation.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, 25, 26, 31, and 301 are amended as
follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par 2. Section 1.7701-1 is added to read as follows:
Sec. 1.7701-1 Definitions; spouse, husband and wife, husband, wife,
marriage.
(a) In general. For the definition of the terms spouse, husband and
wife, husband, wife, and marriage, see Sec. 301.7701-18 of this
chapter.
(b) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
0
Par. 3. The authority citation for part 20 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 4. Section 20.7701-2 is added to read as follows:
Sec. 20.7701-2 Definitions; spouse, husband and wife, husband, wife,
marriage.
(a) In general. For the definition of the terms spouse, husband and
wife, husband, wife, and marriage, see Sec. 301.7701-18 of this
chapter.
(b) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
0
Par. 5. The authority citation for part 25 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 6. Section 25.7701-2 is added to read as follows:
Sec. 25.7701-2 Definitions; spouse, husband and wife, husband, wife,
marriage.
(a) In general. For the definition of the terms spouse, husband and
wife, husband, wife, and marriage, see Sec. 301.7701-18 of this
chapter.
(b) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX
REFORM ACT OF 1986
0
Par. 7. The authority citation for part 26 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 8. Section 26.7701-2 is added to read as follows:
Sec. 26.7701-2 Definitions; spouse, husband and wife, husband, wife,
marriage.
(a) In general. For the definition of the terms spouse, husband and
wife, husband, wife, and marriage, see Sec. 301.7701-18 of this
chapter.
(b) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
0
Par. 9. The authority citation for part 31 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 10. Section 31.7701-2 is added to read as follows:
Sec. 31.7701-2 Definitions; spouse, husband and wife, husband, wife,
marriage.
(a) In general. For the definition of the terms spouse, husband and
wife, husband, wife, and marriage, see Sec. 301.7701-18 of this
chapter.
(b) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 11. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 12. Section 301.7701-18 is added to read as follows:
Sec. 301.7701-18 Definitions; spouse, husband and wife, husband,
wife, marriage.
(a) In general. For federal tax purposes, the terms spouse,
husband, and wife mean an individual lawfully married to another
individual. The term husband and wife means two individuals lawfully
married to each other.
(b) Persons who are lawfully married for federal tax purposes--(1)
In general. Except as provided in paragraph (b)(2) of this section
regarding marriages entered into under the laws of a foreign
jurisdiction, a marriage of two individuals is recognized for federal
tax purposes if the marriage is recognized by the state, possession, or
territory of the United States in which the marriage is entered into,
regardless of domicile.
(2) Foreign marriages. Two individuals who enter into a
relationship denominated as marriage under the laws of a foreign
jurisdiction are recognized as married for federal tax purposes if the
relationship would be
[[Page 60617]]
recognized as marriage under the laws of at least one state,
possession, or territory of the United States, regardless of domicile.
(c) Persons who are not lawfully married for federal tax purposes.
The terms spouse, husband, and wife do not include individuals who have
entered into a registered domestic partnership, civil union, or other
similar formal relationship not denominated as a marriage under the law
of the state, possession, or territory of the United States where such
relationship was entered into, regardless of domicile. The term husband
and wife does not include couples who have entered into such a formal
relationship, and the term marriage does not include such formal
relationships.
(d) Applicability date. The rules of this section apply to taxable
years ending on or after September 2, 2016.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: August 12, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-21096 Filed 8-31-16; 4:15 pm]
BILLING CODE 4830-01-P