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California Registered Domestic Partners Must Use Community Property Rules to File Federal Return

IRS Chief Counsel Advice (CCA) 201021050

New Rules for 2010 Tax Returns

The IRS recently issued new rules which require California Registered Domestic Partners to apply community property rules when filing their Federal Income Tax returns. The rules require that community property income and deductions be split 50/50 between registered domestic partners starting with 2010 tax returns.

UPDATE Feb 2011:  

The following sentence now appears in IRS Pub 17:  

California, Nevada, and Washington domestic partners. A registered domestic partner in California, Nevada, or Washington must report half the combined community income earned by the individual and his or her domestic partner. See Publication 555.

This statement is significant  in two respects:

The rumored postponement in the effective date of this requirement will apparently not take place.  It appears community property treatment will be required for 2010 returns and will not be optional
2.  The Chief Counsel memo issue in May addressed only Calif. RDPs.  As per Pub 17, this treatment is extended to Nevada and Washington RDPs as well.  

The 2010 Form 1040 and 1040EZ instructions now state: 

A registered domestic partner in Nevada, Washington, or California (or a person in California who is married to a person of the same sex) generally must report half the combined community income earned by the individual and his or her domestic partner (or same-sex spouse).

This clarifies that the community property rules apply to same sex married couples and not just Registered Domestic Partners as was originally states.   So the 18,000 same sex couples married in Calif married during the "window" between May and Nov 2008, must also apply community property rules when filing.

For more information, here is a link to a Bay Area Reporter article that gives some of the background:

Overview of Rulings

Here is a simplified timeline of how the rulings affect Registered Domestic Partners (and presumably Same Sex Marriages) in California:

UPDATE: The IRS has announced their intention of making this optional for returns for 2010, although this is not yet official.

2007-2009 Tax Returns

2007-2009 tax returns may be amended to follow the new rules but this is not required. If RDPs can reduce their overall taxes, they should consider amending prior years.

It is not clear whether the new ruling would apply to 2009 returns not yet filed as of the date of the change (e.g., those on extension).

The benefits of filing an amended return should be weighed against the cost of preparation and any extension of the statute of limitations which may result.


George and John are RDPs living in California.

In 2010 George has $50,000 in wages and $7000 in Federal withholding. John has $30,000 in wages and $3,000 in Federal withholding.

For Federal tax purposes, George and John will each report $40,000 in wages and $5,000 in withholding.

That is, they each report half of the total amounts.

Who Benefits

The change will tend to benefit RDPs which large differences in income---provided the income is community property income.

This is because some of the income may be taxed at lower rates if it is divided.

Who Is Affected

The ruling applies to California RDPs and same sex marriages provided both people still reside in California (domicile).

If the RDPs have moved outside California the community property rules do not apply.

The community property rules also do not apply to RDPs or same sex marriages performed outside California (e.g., marriages performed in CT, DC, IA, MA NH or VT, or RDPs registered in AK, NV, OR, WA).

What Income is Community Property Income

Community property income (subject to splitting 50/50) would typically be wages, self employment income and income derived from community property assets, for example, interest, dividends, rents, royalties, capital gains and losses.

What Income is Separate Property Income

Income derived from separate property is separate income and not community property income.

Examples of separate property would be assets acquired before the marriage or RDP began, after it terminated or by inheritance or gift.

Pension Income

Pension income is allocated to community property vs separate property based on the period during which the pension benefits were earned.

Example: Mary worked for her company for 20 years. Then she retired and started receiving a pension.

Mary and Susan have been RDPs for 2 years.

10% of the pension (2/20) would be considered community property income and divided 50/50 between the Mary and Susan.

The remainder of the pension would be reported by Mary.


IRA distributions and contributions are considered separate property and not community property.

Expenses and Deductions

Business and property related expenses must be split 50/50 if the related income is considered community property.

Itemized deductions would be split 50/50 if paid from community property funds.

If paid from separate funds, the person who paid would receive the entire deduction.

Some Couples May Be Adversely Affected by the Change

In some cases applying the community property rules will result in an overall increase in Federal taxes for the married couples or RDPs.

Examples include:

1. When itemized deductions must be allocated between the partners and one has little or no income.
2. When the increased income of one of the partners causes social security to be taxed or limits the deductibility of IRA contributions or rental losses.

Changing the way income is reported may also have implications beyond income taxes.

For example if the higher income partner wants to obtain a loan based on income reported for tax purposes or the lower income partner wants to apply for a scholarship or education loan.

What Filing Status Would Be Used

RDPs would continue to file as single for Federal purposes or (occasionally) Head of Household or Qualifying Widow(er).

California tax returns are not affected by the Federal ruling as they will continue to be filed as joint returns or (occasionally) as Married/Separate or Head of Household.

If the California return is not joint, community property rules would apply under state law but this was not changed by the new IRS rule.

Offers in Compromise (CCA 201021049)

In a related issue, the IRS has also announced that it may consider the assets of a taxpayer's RDP when determining whether to accept an Offer in Compromise (OIC) under IRC § 7122.

This means that the IRS may not accept an OIC from one of the taxpayers if sufficient community property assets are available to pay the tax liability.

See the following link for more information

IRS Publishes Registered Domestic Partner/CA Same Sex Couples Q & A (September 2011)

In Sept 2011 the IRS published a Q&A (see link below) to answer some of the questions about Registered Domestic Partner and California Same Sex Married returns are to be filed.  

The Q & A clarifies some of the issues not addressed in Publication 555.

I prepare many tax returns for RDPs so if you have any questions, please feel free to contact me.

I offer free initial consultations.

Questions and Answers for Registered Domestic Partners in Community Property States and Same-Sex Spouses in California

All information presented should be considered general in nature and not advice as to a specific situation.