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Ti ».¢ Expert Analysis COMMENT. The Supreme Court deci- sion will presumably trigger tie-breaker rules and divorce settlement agreements previously available only to opposite-sex married couples. Education Benefits. Access to a number of education tax credits by same-sex couples has been limited, both because of a student’s status as a member or non-member of the taxpayer's family and because lower phase- out levels that apply to unmarried filers. um AOTC and Lifetime Learning Credit: A taxpayer can claim the American Op- portunity Tax Credit (AOTC) or the Lifetime Learning Credit for qualified expenses paid by the taxpayer for the education of the taxpayer, the taxpayer's spouse, or the taxpayer’s claimed depen- dent for the tax year for which the credit is claimed. Because of DOMA, a taxpay- er could not claim the AOTC or Lifetime Learning Credit for qualified expenses paid by his or her same-sex spouse. au Coverdell Education Savings Ac- A Coverdell Education Sav- ings Account (ESA) is a savings vehicle counts. similar to an individual retirement account (IRA). If a Coverdell ESA is transferred to a surviving spouse as the result of the beneficiary’s death, the Coverdell ESA retains its status and the spouse may treat the account as his or her own and need not with- draw the assets as a result of the trans- fer. Because of DOMA, this treatment had been unavailable to the surviving spouse of a same-sex married couple. mu IRA Withdrawals For Education. Taxpayers who own IRAs (tradi- tional, Roth, SEP IRAs and SIMPLE IRAs) can make penalty-free with- drawals to pay higher education ex- penses to the extent the distribution does not exceed the qualified higher education expenses of the taxpayer, the taxpayer's spouse, or the child or grandchild of the taxpayer or the tax- payer's spouse. Once again, because of DOMA, this treatment had been unavailable to the surviving spouse of a same-sex married couple. CCH Tax Briefing Post-Death IRA Payments. When a surviv- ing spouse is the beneficiary of an individual retirement account (IRA) he or she has cer- tain options not granted to other beneficia- ries, including the ability to rollover the de- cedent’s IRA, tax free, to another retirement plan. And, if the surviving spouse is the sole beneficiary, he or she can elect to treat the IRA as if it were his or her own. These op- tions may allow the survivor to delay the start of required minimum distributions (RMDs) from the account and to stretch out the payment of RMDs over a longer pe- tiod of time. DOMA had foreclosed these more favorable spousal benefits for same-sex married spouses. The Supreme Court’s deci- sion in Windsor presumably opens up these distribution benefits to same-sex spouses. “In the case of family attribution rules, it is unclear whether application of marital status for same- sex spouses relates back to transactions already completed.” Family Stock Attribution Rules. Code Sec. 267 contains attribution rules designed to prevent related taxpayers (including “spous- es” under Sec. 267(c)(4)) from recognizing losses and other tax benefits otherwise al- lowed in a variety of transactions. For ex- ample, an individual is treated under Code Sec. 318(a)(1) as constructively owning stock owned directly or indirectly by his or her spouse (unless legally separated), children, grandchildren, or parents. Stock attribution rules under Code Sec. 318 apply when de- termining whether a redemption of stock is treated as a sale or exchange or as a dividend. Likewise, prohibited transactions involving pension plans under Code Sec. 4975 are defined, in part, upon dealing with certain persons, including spouses of those persons. IMPACT. The Supreme Court's grant of federal marital status to same-sex married persons is apparently not only prospective starting June 26, 2013, the date of the Windsor decision, but also presumably applies retroactively to all open years. Nevertheless, in the case of attribution rules, application of marital status for same-sex spouses may not necessarily re- late back to transactions already com- pleted. The need under the tax laws to have finality for transactions as they oc- cur appears to be the overriding argument in favor of not giving retroactive effect to family attribution. Eventual IRS guid- ance on this issue is anticipated. Resident And Non-Resident Aliens. Pre- sumably, the Supreme Court’s decision ap- plies to same-sex resident or nonresident aliens to the extent they are considered mar- ried under the law of a foreign jurisdiction. Further clarification of the application of the Supreme Court’s Windsor decision to these taxpayers may be needed. ESTATE AND GIFT TAXATION The Windsor case, as discussed above in this Briefing, involved the estate tax marital de- duction. The marital deduction is a key plan- ning tool to defer transfer taxes until the surviving spouse dies. Because of DOMA, same-sex married couples could not take advantage of the estate tax marital deduc- tion and other provisions, such as portabil- ity. DOMA also precluded same-sex married couples from the benefits of special rules for gifts between spouses and from spouses. Marital Deduction. Code Sec. 2056 provides an unlimited deduction from the gross estate for property passing from a decedent to a sur- viving spouse. Generally, the decedent must be survived by his or her spouse who is a U.S. citizen at the time of the decedent’s death, the property interest must have passed from the decedent to the spouse, and the property inter- est must be a deductible interest. Additionally, the property's value must be ascertainable. IMPACT. The relatively high $5.25 mil- lion estate tax exclusion for 2013 for all estates makes addition of a marital ©2013 CCH Incorporated. All Rights Reserved. HOUSE_OVERSIGHT_029310