- Pronouncements on Same Sex Marriage and Qualified Domestic Partners
- August 24, 2010
- Law Firm: Loeb Loeb LLP - Los Angeles Office
There have been several tax pronouncements dealing with same sex marriage and domestic partners. First, the State of New York Department of Taxation and Finance issued an advisory opinion concluding that same sex marriage partners will not be treated as married for purposes of the New York State personal income tax. Section 607(b) of the Tax Law provides that an individual’s marital status is the same as that individual’s status established for federal income tax purposes. Section 651(b) provides that his filing status shall be the same for New York purposes as for Federal purposes.
The opinion goes on to point out that under the Federal Defense of Marriage Act, the IRS does not recognize same sex marriages for Federal income tax purposes. The Defense of Marriage Act defines marriage as the legal union between one man and one woman. The IRS position has been upheld by the Tax Court in Mueller v. Commissioner, TC Memo 2001-274 (2001). As an aside, last month in Gill v. Office of Personnel Management, the United States District Court for Massachusetts held that the Defense of Marriage Act is unconstitutional. The case will no doubt be appealed.
The IRS also issued a series of Chief Counsel Memoranda outlining certain Federal tax consequences of California’s Domestic Partner Rights and Responsibilities Act (“Act”). A significant change was made to the California Act effective 2007. The Act had previously contained a provision that said earned income of registered domestic partners may not be treated as community property for state income tax purposes. Based on this provision, the IRS had determined (CCA 200608038) that the partner who earned income had to report all of that income on his income tax return, rather than splitting the income with his partner, as would happen if the income was community property. Effective January 1, 2007, the California legislature repealed the language which stated that earned income was not community property. Based on this change in California law, the IRS has issued CCA 201021050 which concludes that starting January 1, 2007, registered domestic partners in California must each report one-half of any earned income received by either partner for Federal income tax purposes.
In CCA 201021048, the IRS addressed Federal gift tax consequences of earned income of registered domestic partners in California. The IRS concluded that since a domestic partner has a vested interest in one-half of the earnings of his partner that is granted by California law, there is no transfer deemed to be made between the partners for purposes of the Federal gift tax law.
In this same release, the IRS also stated that each partner is entitled to one-half of the credit for any tax withholding from the wages of either partner.
Finally, the IRS addressed certain issues related to offers in compromise. The offer in compromise is a procedure for which a taxpayer can apply when he cannot pay all of his taxes. Based on the financial resources available to him, the IRS may agree to accept less than the full amount owing in settlement of the taxpayer’s federal income tax obligations. One of the financial resources the IRS takes into account is the extent to which the taxpayer seeking the reduction may be able to get funds from his spouse or other family members.
In CCA 201021049, the IRS considered whether the financial resources of the taxpayer’s registered domestic partner in California should be considered in evaluating an offer in compromise. Under California’s domestic partner law, property acquired by the partners after the registration of their partnership is community property. Community property is liable to satisfy the debts of either partner. Therefore, the IRS concluded that in considering an offer in compromise, it is appropriate to consider the resources of the taxpayer’s registered partner.