CA Domestic Partners Subject to Community Property Laws for Federal Purposes
Chief Counsel Advice 210121050 has concluded that a California registered domestic partner (RDP), for tax years beginning with 2007, is subject to the community property laws and therefore should report one-half of all community income, including compensation for personal services or income from property on their Federal tax return.
A prior Chief Counsel Advise 200608038 had concluded that a domestic partner under California law had to report all of his or her earned income on his or her own federal income tax return.† The partner couldn't use California community property law to include one-half of the combined income earned by the taxpayer and his or her domestic partner.
This about-face is a result of California repealing the Domestic Partner Rights and Responsibilities Act provision in 2006, which provided that earned income was not to be treated as community property for state income tax purposes.† Thus, effective Jan. 1, 2007, a registered domestic partnerís earned income had to be treated as community property for state income tax purposes (unless an agreement is executed opting out of community property treatment).† Thus, beginning in 2007, California treats the earned income of RDPs as community property for both property law and state income tax purposes.
Applying the principle that federal law respects state law property characterizations, CCA 210121050 has concluded (better late than never) that the federal tax treatment of community property should apply to California registered domestic partners beginning in 2007 (following state law).† However, the CCA goes on to say that for tax years beginning before 2010, registered domestic partners may, but are not required to, amend their returns to report in their income one-half of the community income.
Amended Opportunity?† If you prepared RDP returns for years 2007 through 2009, you should review them and see if amending the returns would result in a tax advantage or not.
Lee Reams Sr.
Lee T. Reams is the Chief Technical Officer of ClientWhys. He is also an Enrolled Agent having managed a 600-plus client tax practice. Educated as an engineer, with a Bachelor's Degree in Mechanical Engineering, Lee left his engineering career in 1975 to expand his part-time tax practice into a full-time career.