The Internal Revenue Service has issued Private Letter Ruling 201021048 with guidance for California registered domestic partners (RDPs).
According to the ruling, California community property laws for RDPs were conformed to be the same as for married couples, effective January 1, 2007.
Therefore, although RDPs can’t file joint federal income tax returns,
1 – Wages and other earned income earned after the partners become RDPs should be divided in half and reported on each partner’s federal income tax return (unless there was an agreement between the partners before earning the income that it would not be community property).
2 – Withholding with respect to community property earned income should be divided in half and reported on each partner’s federal income tax return.
3 – Since the earnings are community property, each partner has a vested interest in his or her share, and there is no transfer or gift from one partner to the other of their vested share for federal gift tax purposes.
Most Califonria tax advisors believed these were the correct conclusions before the IRS issued this ruling, but it is a relief to see more clear guidance. Previous guidance in Chief Counsel Advice 200608038 did not support this position, but the Chief Counsel’s office has issued new advice 201021050, retroactively effective to January 1, 2007, that does support the new position. See blog post http://michaelgraycpa.com/2010/06/11/irs-says-california-rdps-should-split-wages-on-tax-returns/.