Possible New York Estate Tax Refunds for Same-Sex Spouses

Submitted by Brad Polizzano on Fri, 07/26/2013 – 15:28

The New York State Department of Taxation and Finance recently issued guidance to comment on United States v. Windsor, in which the U.S. Supreme Court held section three of the Defense of Marriage Act as unconstitutional.

The good news: The estates of same-sex spouses who paid New York estate taxes sans preferential treatment for married decedents may now seek a refund from the state.

In a recent press release, Governor Andrew Cuomo stated, “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. This financial compensation is one more step toward justice[.]”

One of the first beneficiaries of this new policy is the woman who helped make it possible, Edie Windsor. Windsor was the plaintiff in the case that held DOMA to be unconstitutional.

“I am of course thrilled that I will be getting a refund of the estate tax that I never should have had to pay in the first place,” said Windsor. “What makes me even happier, however, is the fact that no other gay person will ever again have to face the indignity of DOMA.” Windsor expects to receive a refund from NYS of $275,000, plus interest, according to her attorney.

You may ask: If New York State has recognized same-sex marriages since July 24, 2011, why issue guidance just now?

Before the Marriage Equality Act was enacted, same-sex spouses who were legally married elsewhere but were required to file New York estate tax returns were not entitled to the marriage benefits for estate tax liability purposes. Even when New York adopted same-sex marriage, same-sex married spouses who died prior the Marriage Equality Act’s effective date were not entitled to obtain a refund.

Now though, the estates of these same-sex spouses may submit claims for refunds. The estates of same-sex spouses who passed away prior to July 24, 2011 are now treated on equal footing with same-sex spouses who passed away after July 24, 2011 and with heterosexual couples.

The bad news: The statute of limitations for a claim for a refund still applies.

In general, a claim for refund on an overpayment of estate tax must be filed by a taxpayer within the later of:

• Three years from the date the original return was filed (if the original return was filed before the due date, three years from the due date), or
• Two years from the date the tax was paid.

In New York, the estate tax return Form ET-706 is due within nine months after the decedent’s date of death, unless an extension is filed.

Ultimately, the statute of limitations may pose the largest obstacle to an estate tax refund for taxpayers in this situation.

For instance, if Form ET-706 was due and filed with tax paid in full on July 26, 2010, the last day to file a claim for refund would have been July 26, 2013. If, however, the tax due on the return was not paid until July 26, 2012, then the last day to file a claim for refund for the tax paid would be July 26, 2014.

Because there has been legal same-sex marriage in the United States since 2004, there will likely be many taxpayers who are otherwise entitled to the refund that will be prevented from obtaining the refund by the statute of limitations.

Special thanks to Alex Fishbane for his contribution to this post.