The Registered Domestic Partner issues Continues
Several people forwarded a copy of Lynn Freer's Spidell Flash email about an IRS Chief Counsel advice. Of course, I've been subscribed to that series of alerts since day one. Haven't you? If you're doing California taxes, you should be. Lynn Freer has taken over the niche Bob Spidell built, as THE top source of California-related tax information. (I wish there someone comparable in each state.)
Anyway, back to today's tale.
One of the people who sent it to me wasn't really concerned because he only has one affected couple. They earn a lot of money and have no children, so it's not really an issue as far as he is concerned.
Well my friends, look at your California registered domestic partners more closely. (Both same-sex couples and opposite-sex couples.) The CCA is MANDATORY for tax years ending after June 1, 2010. So, next year, when you prepare the 2010 1040s, you will have to treat all their income as community income and split it. You may want to start reviewing their files now to see what effect it will have. There may need to be some planning to ensure that your clients benefit from this arrangement, rather than getting hurt.
At least the good news is, that while the community income is split, any withholding tied to that income will also be split.
As to amending prior year returns? You don't have to do that. But you are welcome to amend, if there are refunds to be had!
While this advisory is specific to California, it would be worth your while to read it carefully. You may want to determine if this affects your community property state, as well. You may want to check with your state EA or CPA society or Bar Association to see if they can research this for you, or intervene with state legislators to make your state's RDP program similar to California's. Just a thought.
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.