Estate taxes to be returned to gay couples

Same-sex couples in New York who paid estate taxes can expect to get their money back. The…

Same-sex couples in New York who paid estate taxes can expect to get their money back.

The Empire State will issue estate tax refunds to qualified spouses, according to an announcement last Tuesday by Gov. Andrew Cuomo.

He cited last month’s Supreme Court decision in United States v. Windsor in which the court decided that Section 3 of the Defense of Marriage Act is unconstitutional.

“STEP TOWARD JUSTICE’

“As a result of that decision, New York State is now able to issue refund checks to qualified same-sex spouses who were required to pay taxes for no reason other than their sexual orientation,” Mr. Cuomo noted. “This financial compensation is one more step toward justice for Edie Windsor, and all of the men and women who confronted similar indifference at a time of deep personal loss.”

Ms. Windsor, a New York resident, sued the federal government after the Internal Revenue Service refused to grant her a $363,000 refund of federal estate taxes that she paid after her spouse died in 2009. Ms. Windsor had also asked for a similar estate tax refund from New York.

New York passed its Marriage Equality Act recognizing same-sex marriages in June 2011. As part of that law, equal treatment was applied to the estates of decedents who passed away on or after July 24, 2011.

Now, in the wake of the Supreme Court’s decision, the treatment also will apply to estates of people who were married elsewhere before the date New York began recognizing same-sex marriage and who were residing in New York when one spouse died, according to the governor’s announcement.

Taxpayers can file claims for a refund within three years of the date the original return was filed or two years from the date that they paid the tax.

The IRS hasn’t yet delivered any guidance on how it will interpret the Supreme Court’s decision.

CASE BY CASE

Financial advisers should review the estates of same-sex couples who still have an open statute of limitations. However, it won’t make sense to file a refund claim in all cases.

“There might be some aggressive valuation positions that the taxpayer may not want audited,” said Ivan Taback, a partner in the personal-planning department at Proskauer Rose LLP.

“The taxpayer may have valued assets at a low value for estate tax purposes, knowing that the tax is due when it’s filed, and the state may not have audited that return,” he said. “You’re potentially giving them another opportunity to focus on items in your return you may not want them to pay attention to.”