IRS Provides Partial Fix to Pre-Windsor Estate and Gift Tax for Transfers to Same-Sex Spouses
On January 17, 2017, Treasury released an advance copy of Notice 2017-15. While taxpayers who paid gift tax and/or GST tax when making a taxable gift to a same-sex spouse still cannot obtain a refund or credit for periods as to which the statute of limitations has closed, IRS will allow the recomputation of remaining unified credit, GST exemption and portability elections to reinstate the available credits. The Notice prescribes the method by which the taxpayer may do that. In addition, actual gift taxes paid will be recognized as gift tax paid or payable for purposes of computing the federal estate tax at death.
Note that the procedures still place economic burdens on same-sex married couples:
- No refunds are permitted for taxes paid or credits disallowed for returns that are outside the statute of limitations.
- If a QTIP marital deduction election is needed to qualify the form of gift or bequest to a surviving spouse, there is no simple filing; instead, a special filing to seek relief under Treasury Regulation Sec. 301.9100-3, a filing that for most taxpayers will require professional assistance. The cost of that filing will be paid by the taxpayer. The same is true for bequests to non-citizen spouses that require a QDOT election.
- For states that have state estate taxes based on the federal estate tax return, and did not recognize same sex marriages, it is not clear whether any relief will be available at the state level.