The Second Circuit recently affirmed a New York federal district court decision that allowed the surviving spouse of a same-sex couple to take an unlimited marital deduction when computing the deceased spouse’s estate tax liability. The Second Circuit agreed with the lower court that Section 3 of the Defense of Marriage Act (DOMA), P.L. 104-199, is unconstitutional.
Sec. 2056(a) allows an estate to deduct the value of any property passing from the decedent to a surviving spouse. The law of the state of domicile usually determines whether two persons were married at the time of death when completing an estate tax return. Section 3 of DOMA defines “marriage” and “spouse” for all federal legal purposes and states that marriage can only be “a legal union between one man and one woman,” and a spouse can only be “a person of the opposite sex who is a husband or a wife.” In a previous case, last May, the First Circuit, in Massachusetts v. United States Dep’t of Health and Human Servs., No. 10-2204 (1st Cir. 5/31/12), aff’g Gill v. Office of Personnel Management, 699 F. Supp. 2d 374 (D. Mass. 2010), also held that DOMA violates the Equal Protection Clause of the Constitution because it denies same-sex married couples the same federal benefits, such as filing a joint federal income tax return, afforded most married couples.
For 30 years, Edith Windsor and Thea Spyer were in a committed relationship living in New York City. In 1993, when the option became available in the state of New York, Windsor and Spyer registered as domestic partners, and in 2007 they were married in Canada. Spyer died in 2009, leaving all her assets to Windsor. When Windsor, as executor of Spyer’s estate, filed the estate tax return, she did not claim a marital deduction, resulting in an estate tax liability of $363,053. In 2010, she filed a suit in the U.S. District Court for the Southern District of New York requesting a refund of all of the estate taxes paid, arguing that as the legally married spouse of the decedent, she should have been eligible to claim the marital deduction and that Section 3 of DOMA is unconstitutional. That court agreed with Windsor, and the Bipartisan Legal Advisory Group of the U.S. House of Representatives appealed the decision to the Second Circuit after the Justice Department refused to defend DOMA.
The Second Circuit applied the intermediate scrutiny standard of review to DOMA, a standard that would require DOMA to advance an important government interest by means that are substantially related to that interest for it to be constitutional. The court held that the classification of same-sex spouses in Section 3 of DOMA was not substantially related to an important government interest and, thus, found the provision unconstitutional. Although the Second Circuit in this case and the First Circuit in Massachusetts found Section 3 of DOMA to be unconstitutional, the First Circuit did not apply intermediate scrutiny review.
Windsor, No. 12-2335 (2d Cir. 10/18/12), aff’g 833 F. Supp. 2d 394 (S.D.N.Y. 2012)
By Charles J. Reichert, CPA, instructor of accounting, University of Minnesota–Duluth.