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November 12
, 2012
group 2012
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The following alert is from Desmond Sheridan

 

U.S. Appeals Court Rules in Intersection of Estate Tax Law and Defense of Marriage Act

 

In 1996, Congress enacted, and President Clinton signed into law, the Defense of Marriage Act (DOMA). Section 3 of DOMA defines marriage for purposes of administering Federal law as the "legal union between one man and one woman as husband and wife." It further defines "spouse" as "a person of the opposite sex who is a husband or wife."

 

Although a state or foreign country can permit same-sex marriage, DOMA is designed to deny same-sex spouses the benefit of federal laws.

 

In this case, Edie Windsor and Thea Spyer were married in Canada in 2007. Spyer died in 2009, leaving her estate to Windsor. Normally, inheritances left to a spouse are free of federal estate tax. However, because of DOMA, the estate did not qualify for the "marital deduction." As a result, the estate had to pay $363,053 in federal estate tax on Spyer's estate. Windsor paid this amount in her capacity as executor of the estate.

 

In February 2011, Attorney General Holder announced that the Department of Justice would no longer defend DOMA's constitutionality. He informed Members of Congress so that they could defend DOMA if they wished. That happened in this case. The court allowed the Bipartisan Legal Advisory Group of the U.S. House of Representatives to intervene in this case to defend the constitutionality of the statute.

 

The Attorney General also said the law "will continue to remain in effect until Congress repeals it or there is a final judicial finding that strikes it down," and "the Executive Branch will continue to enforce the law."

 

In response to Windsor's suit, The U.S. district court held that DOMA �3 was unconstitutional and that Windsor was accordingly entitled to a refund. In October 2012, the Second Circuit of the U.S. Court of Appeals affirmed the district court's decision.

 

The Court said that discrimination against homosexuals must be "substantially related to an important government interest." The proponents of the law advanced two primary arguments for why Congress enacted DOMA: (i) "unique federal interests" (i.e., a consistent federal definition of marriage, protecting the fisc, and avoiding "the unknown consequences of a novel redefinition of a foundational social institution"), and (ii) to encourage "responsible procreation."

 

The Second Circuit found that, regarding the uniformity argument, marriage has traditionally been "a virtually exclusive province of the States," and Congress and the Supreme Court have historically deferred to (non-uniform) state domestic relations laws. DOMA, however, was an "unprecedented intrusion" into this area. Further, DOMA arguably created more discord than uniformity, it created inefficiencies, and it left intact all other marriage-related inconsistencies.

 

The Appellate Court similarly found that DOMA couldn't be justified based on protecting the fisc. It agreed with the district court that cost savings alone can't support an "otherwise invidious classification," and that DOMA's range extends far beyond fiscal-related laws. The Court said that preserving the "traditional understanding" of marriage was also an insufficient justification to withstand constitutional attack, and as noted by the district court, the asserted rationale of encouraging responsible procreation related more to the treatment of opposite-sex couples and wasn't even rationally related to DOMA.

 

Accordingly, the Second Circuit affirmed the district court's decision allowing the marital deduction and holding DOMA �3 unconstitutional.

 

This means that unless the case is reversed by the U.S. Supreme Court, Ms. Windsor is entitled to a refund of the $363,053 she paid. The case is interesting because it highlights how same-sex couples can feel a real life effect from laws relating to marriage. While much of the discussion about the issue is about the theoretical definition of marriage, this case shows how the definition can result in a real financial difference to a same-sex spouse.

 

About the Writer

Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant.  His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning.  Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a "Best Lawyer in America," a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina.  He has given numerous continuing education presentations to CPAs and attorneys.

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