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Tax Issues for Registered Domestic Partners
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Here are a few federal tax issues that arise for registered domestic partners that do not arise for married couples (and should not be problems for state tax purposes):
Splitting Community Income on Individual Federal Returns
Don Read applied to the U.S. Treasury Department and to the Internal Revenue Service for both a public and a private ruling that California registered domestic partners should each report half of their community income on their federal income tax returns. This is what married couples do in community property states when they file separate federal returns. Before issuing either ruling, pro or con, the IRS announced in February 2006 that community income splitting applies only in marriages. Then, a year later, the IRS declined "in the interest of good tax administration" to issue a private ruling one way or the other on the issue. If the IRS was right in 2006, why won't it rule on the issue in 2007?
Taxation of Support
If a registered domestic partnership is dissolved and one ex-partner is ordered to pay the other ex-partner support, there is general agreement that the support is non-deductible for federal income tax purposes. It is not altogether clear whether the support is taxable to the recipient, although there is some argument that it should not be.
Property Transfers
The federal income, gift and estate tax provisions that make certain property transfers between spouses and former spouses incident to divorce do not apply to registered domestic partners. However, the equal division of the partners' community estate should be tax free; but the IRS has not ruled on the issue, so it remains an issue of concern.
Principal Residence Sales
The special federal rule that treats a former spouse as using his or her former marital residence so long as he or she has an ownership interest in it and his or her former spouse is using it as a principal residence under the provisions of a divorce or separation instrument does not apply to former registered domestic partners.
Employee Benefits
Qualified domestic relations orders (QDRO's) that assign interests in qualified plans and that shift the tax burden along with the assigned benefits are not available to domestic partners as they are to spouses. Whether a former partner can qualify as a dependent to at least be able to be assigned an interest in the plan is unclear. Section 408(d)(6) orders transferring interests in IRA's are also unavailable.
Personal Deductions
When community income is used to pay one partner's deductions (e.g., a partner's medical expenses or the mortgage on a house owned by only one of the partners) who gets the deduction, or whether part of the deduction may be lost, is unclear.
Head of Household Filing Status
One domestic partner cannot qualify the other domestic partner for head of household filing status even though the first partner is a dependent of the second.
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Spousal & Family Support | Dividing Property | Dependency Exemption/Head of Household
Joint Return Liability; Reporting Community Income | Dividing Employee Benefits
Principal Residence | Gift & Estate Tax Issues | Registered Domestic Partners
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