June 26, 2013
Ms. Windsor's Tax Case (or, United States v. Windsor)
Posted by Christine Hurt

All kinds of media have been lit up this week as the Supreme Court seemed to save the most anticipated opinions for the last ones.  Affirmative action in higher education (Fisher); Indian Child Welfare Act (Adoptive Couple v. Baby Girl); Voting Rights Act (Shelby County); and today, the opinions that generally are known as the same-sex marriage cases (Windsor and Hollingsworth).

Usually, on this day in June, Conglomerate doesn't have a lot to add.  There's no fiduciary duty angle; no securities fraud angle; no administrative or financial institutions angle.  This is Con Law week.  Every year.  But, we need to remember that Windsor is really a tax case.

I understand how equal protection cases get to the Supreme Court.  I'm no rookie -- I understand that the groups that finance these lawsuits pick plaintiffs that they hope will stand as positive examples the public will rally behind (see, e.g., Abigail Fisher).  Edith Windsor is no exception; she and her late wife Thea Spyer have a compelling love story.  Here is Windsor's one-page NYT magazine interview; here is a slightly longer New Yorker article, which surprisingly notes that gay rights organizations did not take her case.  Windsor, 83, was a highly educated woman who had a successful career at IBM at a time when most women didn't have careers.  She met Spyer when in 1963 and began a long-term relationship with her (much of the time not an publicly romantic one), which ended with Windsor nursing Spyer, who succumbed to multiple sclerosis in 2009.    In the meantime, they registered as a civil union in New York when it was available in 1993, then married in Canada in 2007.  New York recognized that marriage and now provides for same-sex marriage in the state.  But, when Spyer left two highly appreciated pieces of property to Windsor at her death, Windsor was taxed as a non-spouse under the federal tax code.  If Windsor had been treated as a spouse, she would have qualified for the marital deduction, which would have taken those properties out of the taxable estate by virtue of I.R.C. 2056(a).  But, Section 3 of the Defense of Marriage Act of 1996 changed the definition of spouse in 1 U.S.C. 7  to "refer only to a person of the opposite sex who is a husband or wife."  Because Windsor did not meet the definition, her tax bill related to the bequest was $363,053.

The Supreme Court held today (5-4, of course), that Section 3 violated the U.S. Constitution.  I will leave it to the con law experts to explain the opinion.  Something about the U.S. Constitution protection the right to intimate relationships with members of the same sex (Lawrence), so no federal law could restrict access to a federal benefit (or burden) based on categorizing by those relationships.  That's close-ish, right?  But, the court did not opine on the constitutionality of Section 2, which allows states to refuse to recognize same-sex marriages from other states and the Court did not opine on whether similar "defense of marriage acts" enacted by states would be unconstitional.  The Court talks a lot about how domestic issues such as marriage and adoption are left to the states.  But, then the Court has to acknowledge that states are subject to constitutional restrictions and to cite Loving.  But, the Court never says whether a state DOMA would be like a prohibition against interracial marriage or like any other state requirement.  So, this is an open question and probably the ultimate question.

But, as for those who are in a valid same-sex marriage and live in a state in which it is recognized, then the case has far-reaching implications from the symbolically positive to the economically negative.  Yes, the marital deductions will apply for estate tax, but there may be other parts of the tax code that may zing you.  Federal healthcare benefits could be a boon, but a spouse's income will be considered for financial aid application purposes for the first time.  Social Security spousal benefits will apply.  The Bankruptcy Code.  Military and veteran's benefits.  Board of directors independence requirements?  (O.K. that probably doesn't affect many people, but I thought I would throw it in.)

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