Domestic Partnership Tax Information

The IRS has changed the way domestic partners in Nevada should file their taxes. Here is a memo from Jason B. Cooper, Accountant.

This should not be considered tax advice, and you should consult an accountant for more information.

Date: January, 23, 2011

Fr: Jason B. Cooper, Tax Preparation, Bookkeeping, and Personal Financial Consulting

Re: IRS requirements for Registered Domestic Partners in Nevada, California, and Washington

The Internal Revenue Service (IRS) issued three Chief Counsel Advices that impact individuals living in Nevada, California, and Washington for the 2010 tax season. Chief Counsel Advice 201021048, 201021049, and 201021050 were issued to address the questions raised by Registered Domestic Partners in California on how their income was to be taxed. California, and also Nevada, and Washington, not only have Registered Domestic Partnership laws on the books, but they also have community property laws relating to couples in their states. These advices were issued to answer those questions in California, and subsequently expanded to include Nevada and Washington.

Several court cases pertaining directly to tax law have been issued since 1930 addressing what property was subject to taxation and how it should be taxed. The courts have upheld that state law determines what property, or rights to property, is subject to taxation. The federal government determines how property is to be taxed. Therefore, it is the state where one resides that determines how the individual needs to report its assets subject to taxation. The IRS’s decision on this was to require Registered Domestic Partners in these states to report half of the combined community income earned by the individual and his or her domestic partner for the 2010 tax season. This is in conformity to a married couple in a community property state that must split their incomes. While this decision requires community property allocations in 2010, the taxpayer has the option of filing amended returns for any prior years that are not past the statute of limitations (usually three years).

The publication that details how this is to be done is publication 555, Community Property. However, publication 555 specifically states that domestic partners in California are NOT to use this form. In a phone call placed to the IRS on January 19, 2011, I spoke with a Mr. Thrailkill, ID# 1001307528, and asked him how to apply these rulings. Mr. Thrailkill confirmed with me that publication 555 is outdated and not current to comply with the requirements. They have not been able to update it just yet, but are working on correcting this confusing situation. Registered Domestic Partners ARE supposed to use the guidance in publication 555 for filing their 2010 returns.

The taxpayer that is subject to this new requirement will have to mail their returns in and attach a worksheet illustrating how the split is performed. The same property in publication 555 that is subject to community property splitting also applies to a Registered Domestic Partner.

Since a few of these advices were issued late in the 2010 year, it is highly advised that you review your tax software or inquire to your professional tax preparer to insure they are updated on these changes. There is not a lot of information about this circling around out there and it might not be known by some.

The information contained in this memo was effective as of January 23, 2011. The tax law may change between now and the time the taxpayer files their 2010 return. It is best to seek the advice of a professional prior to submitting your return in 2010. The advice in this memo may or may not entirely apply to a taxpayer and therefore, subject to change per the taxpayers’ situation.

I have provided a link to a New York Times article addressing this further:
http://www.nytimes.com/2011/01/14/us/14bcjames.html?_r=2

Jason B. Cooper
Tax Preparation, Bookkeeping, and
Personal Financial Consulting
2750 Plumas Street Unit 205, Reno, Nevada 89509 | jbcooper1040@gmail.com