By Roy Whitehead, Jr, JD, LLM, University of Central Arkansas

Many companies and educational institutions are extending health and life insurance benefits to their employee's domestic partners and the partner's dependents. The critical question for the IRS, and taxpayers, is whether domestic partners, or their dependents, are considered the same as a spouse, or dependents of a spouse, under the code and regulations in regard to the exclusion of health and life insurance benefits from gross income. Regulation section 1.106-1 says that the gross income of the employee does not include contributions of the employer to an accident or health plan for compensation to the employee for accident or sickness incurred by the employee, his spouse, or dependents. Regulation section 1.79-3 (f) (2) provides that group life insurance payments on behalf of the employee, spouse, or family member of the employee, are also excludable from gross income.

In PLR 9717018, of April 25, 1997, the IRS advised that the "Defense of Marriage Act" P.L. 104-199, signed by President Clinton in September 1996, controlled the fringe benefits exclusion question for domestic partners because it provides, "In determining the meaning of any act of Congress, or of any ruling, regulation or interpretation of the various agencies of the United States, the word 'marriage' means only a legal union between one man and one woman as husband and wife, and 'spouse' refers only to a person of the opposite sex who is a husband or a wife." IRC section 152 (a) (9) defines a dependent as one who has a place of abode in the home of the taxpayer and is a member of the taxpayer's household. IRC section 152 (b) (5) provides that an, "individual is not a member of the taxpayer's household if, at any time during the taxable year of the taxpayer, the relationship between such individual and the taxpayer is a violation of local law."

Citing the "Defense of Marriage Act" and code sections above, the IRS concluded that life, medical, hospitalization, and dental insurance provided to domestic partners and their dependents under group life and health benefit plans will not be excludable under IRC sections 79 and 106, but will be includable in gross income of the eligible employee as compensation for services under IRC section 61. The ruling is limited to the issue of determination of gross income and does not otherwise impact the employer's policy decision to provide fringe benefits to domestic partners of employees. The inclusion of such benefits, however, in the employee's gross income will certainly be a critical disincentive for low- and middle-income employees to provide health and life insurance for their domestic partners. The exclusion of such benefits from the gross income of traditional spouses and dependents as defined by the IRC and regulations remains undisturbed by the ruling. *