CCA 201021050 announced that the IRS will recognize the application of Poe v Seaborn to Registered Domestic Partners (RDPs) in community property states. Under Seaborn, partners are required to split their community income 50/50, no matter who earns the income. I get inquires almost every day from people who question whether or not this rule is mandatory or optional. I have answered this question before. The income-splitting rule is mandatory as of 2010. If you are still unsure about why, you might want to read the rest of this post.
Most often the question comes from someone who quotes the following line from the CCA: “For tax years beginning before June 1, 2010, registered domestic partners may, but are not required to, amend their returns to report income in accordance with this CCA.” Their argument is that tax year 2010 begins before June 1, 2010 (true) and so it looks like the application of the income-splitting rule for 2010 is optional. Please re-read that sentence. What it says is that RDPs may but are not required to AMEND THEIR RETURNS. So if you filed a return for a tax year beginning before June 1, 2010, you may amend it, but you don’t have to.
I doubt that anyone had filed a calendar year 2010 return before June 1, 2010 and so the rule regarding amendments, as a practical matter, only applies to calendar tax years 2009 and earlier.
And, you should read the sentence regarding amendments in context. The full statement in the CCA is:
“Consequently, for tax years beginning after December 31, 2006, a California registered domestic partner must report one-half of the community income, whether received in the form of compensation for personal services or income from property, on his or her federal income tax return.
You also asked how to treat a registered domestic partner who reported all of his or her earned income in accordance with CCA 200608038. For tax years beginning before June 1, 2010, registered domestic partners may, but are not required to, amend their returns to report income in accordance with this CCA.”
Please note the first paragraph. For tax years beginning after December 31, 2006 you MUST report under the income-splitting rule. That means that if, for some reason, you have not yet filed for 2007, 2008, and 2009, you MUST report under the income-splitting rule. It is my understanding that some individual return preparers who had clients on extension for prior years as of June 1, 2010 were able to get a concession to report those years as planned – i.e., by not splitting. But there have been no informal concessions made for filings for tax year 2010 – which, of course, aren’t due yet.
The “may but not required” language applies only to amended returns, not to original returns. So, if you are following the language of the CCA carefully, the following rules apply:
1. You may amend a previously filed return (but are not required to do so), and
2. You must file any original return for any year after December 31, 2006, in accord with the CCA.
That is what the CCA says. This level of announcement (e.g., a CCA) from the IRS is not authoritative. Nor is the informal advice some of us have received over the telephone. The authority for this situation is Poe v Seaborn, the 1930 Supreme Court case that required couples who are subject to community property laws to split their income.
Given the IRS confusion on this issue over the past several years, I think you have a good argument if you did not follow the income-splitting rule for past filings. But I think you are on much weaker ground if you continue to ignore this rule now that the IRS has embraced it.
