In California, registered domestic partners (DPs) are subject to that state's community property laws, and may file their state tax returns accordingly. But as the San Jose Mercury News reports, the question of how to deal with federal tax returns has sown a great deal of angst and confusion.
The IRS, having waited until the middle of tax return season,
has now issued a clarification,
recognizing that "the California [Domestic Parntership] Act allowed
registered domestic partners to file joint income tax returns for
California state tax purposes and to be taxed in the same manner as
married couples for state income tax purposes," but
adding:
In our view, the rights afforded domestic partners under the California Act are not "made an incident of marriage by the inveterate policy of the State." The relationship between registered domestic partners under the California Act is not marriage under California law. ... Consequently, an individual who is a registered domestic partner in California must report all of his or her income earned from the performance of his or her personal services notwithstanding the enactment of the California Act.
That means no recognition of community property.
I guess the CPA lobby must be happy, since DPs will have to have their taxes done twice, using two separate sets of "books"-one that recognizes their financial union and one that pretends that they're just two economically unconnected entities.
This sort of federal nonrecogntion, an outgrowth of the Defense of Marriage Act (DOMA), will only get worse as forward-looking states recognize gay couples' spousal relationships through DPs, civil unions, or marriages, while Washington resolutely digs in its heels.
More. Reader Dan Leer clarifies that DOMA would
prohibit gay couples from filing joint federal returns even if
states (such as Massachusetts) recognized them as wed. At issue in
Calif. is community property:
Under long-standing federal precedent, state law determines the rights of persons to property and income and federal law determines the federal income tax consequences attendant to such rights. For more than a century, the federal courts have held that spouses who are resident in a community property state are not only permitted, but required, to report their shares of the community income on their respective individual income tax returns (if they file separately) without regard to which spouse actually earned the community income.
What the IRS has now concluded (in a Technical Advice Memorandum, which does not have the force of legal precedent) is that registered domestic partners cannot split their community income in this fashion-and not that they cannot file a joint return.
I believe that this flies in the face of well-established precedent to the contrary, but ultimately the courts will have to determine what the federal income tax law is as respects this issue.