Supreme Court DecisionsPosted: July 1, 2013
Last week the Supreme Court issued four decisions that will impact businesses and B&I CPAs need to be prepared to react. Two decisions related to discrimination/harassment lawsuits and two decisions related to same-sex marriage.
The first discrimination decision limited who could be considered a supervisor for purposes of bringing a harassment lawsuit against a company. The Supreme Court said a supervisor must be someone who makes “tangible employment actions” like hiring, firing, promoting, demoting or reassigning an employee. This means that someone who directs the daily work activities but does not have those additional responsibilities is simply a co-worker. The reason this matters is that there is a significant difference in meeting the burden of proof when harassment comes from a supervisor versus harassment by a co-worker. The second case dealt with retaliation for complaining about harassment. The courts held that retaliation cannot simply be a motivating factor but must be the primary factor in the supposedly retaliatory action. Once again this increases the burden of proof on a plaintiff in a harassment lawsuit.
While these two decisions are more about running a business, they do have an impact on the accounting results. If a business is subject to any lawsuits purporting harassment, any liability and disclosures made under ASC 450 (yes, I had to look that up; I still call it FAS 5) need to be re-evaluated under the new standards handed down by the Supreme Court and, with many companies about to complete their second quarter, that analysis needs to be done quickly.
The decisions on same-sex marriage would not appear to impact companies at first blush, but they are likely to have much more significant impact on the day to day work by B&I CPAs at a company than the two decisions discussed above. In a pair of decisions, the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional, but while effectively ruling that same-sex marriage in California was legal, it did not say that same-sex marriage was a constitutional right and therefore each state is allowed to make their own decision on the legality of such marriages for now.
These decisions impact any company with a savings (401(K)) plan or a pension plan as well as the many companies that offer medical and other benefits to employee partners. Up until today, medical benefits were considered taxable compensation to same-sex married partners because the IRS, under DOMA, did not view a same-sex marriage as the same as an opposite-sex marriage. While we will have to wait for word and possibly regulations from the IRS, it seems likely that such benefits tax status would now be the same. This would seem to mean a simple change to the payroll system to stop adding the value of the benefits for a same-sex partner to the employee’s taxable compensation on the W-2, but it is going to be more complicated than that. With roughly 15 States recognizing same-sex marriage and 35 not recognizing such marriages, the taxability of these benefits is not an all or nothing proposition for payroll departments. Employees without a valid marriage license from a state would still have the value of the benefits taxed, but what if the employee has a valid marriage licenses from a state, but then moves to or resides in a state that does not recognize such marriages as valid? The fact that the Supreme Court left it up to the states to decide what is and is not legal within their borders would seem to not make such guidance from the IRS clear-cut. The one thing that is certain is such guidance is likely to be considered just as controversial as the Supreme Court decisions which is not exactly what the IRS needs today given its already considerable public relations issues.