IRS and Treasury Department Provide Guidance on Same-Sex Marriage

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have announced that same-sex couples who are legally married in jurisdictions that recognize same-sex marriage will be treated as married for all federal tax purposes. Guidance has been provided in the form of a Revenue Ruling (Rev. Rul. 2013-17) and associated Frequently Asked Questions.

State granting marriage is key, not state of residence

If a same-sex couple is legally married in a state that recognizes same-sex marriage, the couple will be treated as married for all federal tax purposes. This is true even if the couple resides in a state that does not recognize same-sex marriage. So, a same-sex couple legally married in a state that recognizes same-sex marriage, but residing in a state that does not recognize same-sex marriage, will be treated as married for federal tax purposes even though it's possible the couple may not be treated as married for state tax purposes. Recognition also applies to same-sex couples legally married in the District of Columbia, a U.S. territory, or a foreign country.

Registered domestic partnerships, civil unions, and other formal relationships recognized under state law do not qualify--only couples legally married under state law will be treated as married for federal tax purposes.

Applies for all federal tax purposes

Legally married same-sex couples are treated as married for all federal tax purposes. This applies for federal estate and gift tax purposes, and for federal income tax purposes, including:

• Filing status issues
• Personal and dependency exemptions
• Standard deductions
• Employee benefits
• IRA contributions and deductions
• The earned income tax credit (EITC)
• The child tax credit

2013 tax year implications

If you are legally married on the last day of the year, you generally have to file your 2013 federal income tax return as a married individual. That means same-sex couples treated as married for federal income tax purposes will generally have to choose whether to file their 2013 federal income tax return as married filing jointly, or as married filing separately.

Prior tax years

If you were married prior to 2013, you may also amend prior year federal income tax returns, choosing to be treated as married for federal income tax purposes (assuming that you were legally married on the last day of the tax year(s) being amended). You're only able to file an amended return, however, for any tax year still open under the statute of limitations. Generally, the statute of limitations for filing a refund claim is three years from the date a return was filed, or two years from the date tax was paid, whichever is later. For most individuals, that means claims can still generally be filed for tax years 2010, 2011, and 2012. You are not required to amend a prior year return, however.

It's important to note that if you choose to amend a prior year federal income tax return in order to be treated as married, all items on the return must be adjusted to consistently reflect your marital status (i.e., married filing jointly or married filing separately). That is, if you amend a prior year tax return to be treated as married, you are treated as married for all items and issues related to the return.

Note: If your employer provided health coverage for your same-sex spouse and included the value of that coverage in your adjusted gross income (AGI), amending your prior year return to reflect your status as a married individual may allow you to recover the income taxes paid on the value of this coverage. Similarly, if you paid premiums for health-care coverage for your same-sex spouse with after-tax dollars, you may be able to reduce your income by these premium amounts.

Note: For tax year 2012, same-sex spouses who filed their federal income tax returns before September 16, 2013 (the effective date of the Revenue Ruling) may choose--but are not required--to amend their 2012 federal income tax returns to file as married (i.e., married filing jointly or married filing separately). Same-sex spouses who file an original federal income tax return for the 2012 tax year (or for any prior tax year, for that matter) on or after September 16, 2013, will not have a choice--if legally married for the tax year, they will generally have to file their federal income tax return as married filing jointly or married filing separately.

Guidance issued in response to recent Supreme Court decision

The Treasury Department and IRS guidance was issued in response to the recent Supreme Court case striking down Section 3 of the Defense of Marriage Act of 1996 (DOMA), which defined marriage as the union of a man and a woman.

Investment Adventures in Emerging Markets - Turmoil Shouldn’t Derail Turkey

Mark Mobius, PH.D., Executive Chairman, Templeton Emerging Markets Group, Singapore

In 2012, Turkey’s stock market (as measured by the Istanbul Stock Exchange National 100 Index) rose more than 50%1, posting one of the strongest performances of any global equity market last year. However, recent news of protests sweeping the nation has started scaring off some investors, at least in the short term. We consider turmoil to often be a natural part of change and development, and these short-term political disturbances likely won’t be the last. What we try to remind investors is the importance of remaining focused on the long-term opportunity in Turkey and not be spooked by short term issues. I’ve invited my colleague
Carlos von Hardenberg, Managing Director, Turkey, based in Istanbul, to share some local insight.

Carlos von Hardenberg, Managing Director, Turkey
Franklin Templeton

In Turkey, what began as peaceful protests against the government’s plans to redevelop Gezi Park in Taksim Square turned into riots met by police with tear gas and water cannons, creating public uproar. This unfortunate disturbance has spread beyond the issue of the park and into political discourse, as there is a fundamental political conflict in Turkey between those who want a secular state and those who prefer an Islamic-based government. The resulting turbulence is likely to continue in the short term. While many have been quick to criticize the government, there is a large part of the population that supports Prime Minister Recep Tayyip Erdogan, who seems to now be making efforts to calm the situation by agreeing to hold discussions with protest organizers after tensions began to escalate.

The geopolitical uncertainty has caused a sharp decline in Turkish equities in recent weeks, unraveling what had been a positive start to the year. However, from a long-term point of view we remain positive on Turkey, which outperformed other emerging markets generally last year. Of course, past performance does not guarantee future results. We are bullish on Turkey for a few reasons. From an economic and
investment standpoint, we think the track record of the government has been outstanding, with policies conducive to attracting foreign investment there. The government has privatized public assets, and has been investing in infrastructure. Its plans include high-speed rail, a third bridge over the Bosphorus, tunnels, as well as plans to build what could be the largest airport in the world. Currently, investment sentiment in this regard
remains positive.

Turkey also boasts positive fundamentals. Its GDP has increased dramatically since 2002, and its banks are generally very well capitalized and more stable than in most parts of the world, including much of Europe. Interest rates are low compared with many other emerging markets. Turkey’s central bank cut its key interest rates by 50 basis points (0.5%) in May. The one-week repurchase lending rate was reduced to a record low of 4.5%, while the overnight lending and borrowing interest rates were cut to 6.5% and 3.5%, respectively.

In addition, Turkey has developed into a very important trading partner with the EU and established a very competitive export industry that has seen vibrant growth in the past 10 years.

This year, Moody’s Investors Service became the second international ratings agency to upgrade Turkey’s credit rating to investment grade. Moody’s raised the country’s sovereign bond ratings by one level to Baa3 from Ba1, with a stable outlook. The agency cited “recent and expected future improvements in key economic and public finance metrics” and “progress on structural and institutional reforms that Moody’s expects will reduce existing vulnerabilities to shocks to international capital flows over time” as reasons for the upgrade. The recent civil disturbances in the country could undermine its economic outlook, however.

Turkey’s central bank has been able to manage the currency. Inflation has come down significantly, from as high as 120% in 1994, (as measured by the consumer price index on a year-over-year basis), to just over 6% in 2012.

Despite all of this, it is now important for the Turkish government and the prime minister to show that they are the leaders of all of Turkey to help the country return to a normal state. In our

1. Source: Bloomberg LP. Borsa Instanbul Stock Exchange National 100 Index, priced in local currency. Past performance is not indicative of future results. Indexes are unmanaged and one cannot directly invest in an index.
2. Source: MSCI Indexes. All MSCI data is provided “as is.” MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. 

Past performance is not indicative of future results. Indexes are unmanaged. One cannot directly invest in an index.