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Recalculating Transfer Tax Treatment of Prior Gifts to Same-Sex Spouses

February 21, 2017
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The Internal Revenue Service “IRS” recently issued Notice 2017-15 providing guidance on procedures that same-sex married couples and their executors should use to recalculate the transfer tax and generation-skipping transfer (GST) tax on assets transferred to spouses prior to the Defense of Marriage Act (DOMA) was deemed unconstitutional.
In 2013, The U.S. Supreme Court held in the Windsor case that DOMA was unconstitutional. Subsequently, the IRS issued Rev. Ruling 2013-17 clarifying that, for federal tax purposes, “marriage” and “spouse” would include same-sex couples lawfully married under state law. Unfortunately, Rev. Ruling 2013-17 only applied prospectively, giving same-sex spouses who made prior gifts or bequests to each other limited relief. 
Notice 2017-15 provides that, so long as the time limitation period has not expired for refunds, or credits of previously filed gift and estate tax returns, an amended gift tax return (Form 709) and/or a supplemental estate tax return (Form 706) can be filed. The amended returns can claim a marital deduction for a bequest or gift to a same-sex spouse and restore the applicable exclusion allocated to that transfer.
If the limitation time period has expired for refunds or credits of gift or estate tax, the notice also provides specific procedures that should be followed to recalculate the surviving same-sex spouse’s remaining applicable exclusion and GST tax exemption.
If you have any questions regarding current or proposed policy, please do not hesitate to reach out to member of Citrin Cooperman’s Trust and Estate Practice.