Marriage Pluralism: Taxing Marriage after Windsor

Abstract

The purpose of the tax law is to collect as much revenue in as neutral manner as possible. When the current Code was enacted in 1913 and it was determined that the appropriate taxable unit was the family, a series of patchwork solutions were required to bridge the gap in between the civil and community property law regimes. Those solutions were not based on any fundamental principle of taxation, but, rather, dealing with the binary approach to marriage at that time. As the number of pluralistic approaches to family arrangements increased, the U.S. Department of the Treasury (“Treasury”) did not continue to examine the implications of those relationships. It was not until after U.S. v. Windsor, when the Court decided that the federal definition of marriage in Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional, that Treasury was faced with addressing, at the minimum, the state law differential in what it means to be married. As a formal matter, words like “marriage” or “spouse” do appear to require Treasury to investigate the law of a particular state. Treasury had to determine which state’s definition of marriage applies for federal tax purposes: the state where the couple married (state of ceremony) or the state where the couple resides (state of domicile). As a result of the state level distinctions, Treasury issued Revenue Rule 2013-17, in which Treasury (and thus the IRS) stated that, for federal tax purposes, same-sex couples legally married in jurisdictions that recognize their marriages will be treated as married regardless of whether the state of domicile recognizes that marriage.

But in making this distinction, Treasury failed to address the new menu of cohabitation arrangements that operate as the functional equivalent of marriage. Treasury limited its interpretation of “spouse,” “wife” and “husband” to state marriage and not registered domestic partnership, civil unions and other marriage like arrangements. This article argues that the issue of the proper unit of taxation should be reexamined. A civil marriage ceremony merely bestows a bundle of rights to the participants. The bundle differs from state to state both during the marriage and after the marriage in either death or divorce. This article explores if the purpose of the tax code is to levy on that bundle of rights, than the distinction for tax should not be “marriage” but all forms of commitment that share certain purposes consistent with the utilitarian premise of marriage. Unlike other articles that focus on the severing of the joint filing requirement, this article advocates for a more expansive interpretation of the term marriage based on various prior Treasury positions and using the current utilitarian family law rubrics to develop a functional four-prong test for whether a cohabitation relationship will be treated as married for the purposes of the Code.

Keywords: family law, taxation, windsor, doma, income

JEL Classification: J12, K11, K34