Domestic Partners: Income Reporting - John R. Dundon II, Enrolled Agent
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Domestic Partners: Income Reporting

Domestic Partners: Income Reporting

The IRS issued three rulings in 2010 to address how the income of registered domestic partners in California should be reported and taxed for both state and federal income tax purposes.

In Chief Counsel Advice 201021050, the IRS determined that for tax years beginning after December 31, 2006, registered domestic partners in California are to report one-half of the community income, whether received in the form of compensation for personal services or from property, on the tax return.

In a similar private letter ruling [PLR 201021048], the IRS ruled the same and extended the community property treatment to include one-half of the credits for income tax withholding.

The third ruling, Chief Counsel Advice 201020149, addressed the issue of collection potential when one partner files an offer in compromise. The IRS ruled that it can consider the assets of a taxpayer’s registered domestic partner in California when
determining the reasonable collection potential of a taxpayer’s offer in compromise under IRC §7122.

Although the three rulings from the IRS do not specifically address
other community property states that may have registered domestic partner laws, a recent IRS Quick Alert implied that the IRS would use the same rules in other community property states with similar laws specifically referencing California, Nevada and Washington. The alert stated:

Registered Domestic Partners in California, Washington and Nevada must split their income and withholding credits in accordance with community property laws of their states.

Effective February 14, 2011, they can file a Form 1040 return using either Head of Household filing status (if the taxpayer is claiming one or more dependents) or single filing status.

There are six other community property states: Arizona, Idaho,
Louisiana, New Mexico, Texas and Wisconsin. Some of these states
(maybe all) have domestic partner laws in effect that extend certain fringe benefits, such as health care and retirement benefits to a domestic partner.

It is unclear whether the IRS will require domestic partners residing in these states to split income and withholding as they apparently are required to do in California, Nevada and Washington.