Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

DOMESTIC PARTNERS - BUT NOT TAX PARTNERS?

February 27, 2006

The TaxProf has an overview of the tax issues facing "domestic partners" who have registered as such under California's law. Sounds messy:

For example, if one partner earns $100,000 but a stay-at-home partner earns nothing, are they now entitled to report $50,000 of income on their individual returns? If the stay-home partner's $50,000 share isn't considered income, is it a taxable gift -- or something else? Domestic partners can't assume they'll be safe simply reporting income separately, the way they did before the state law took effect, some experts say. If the IRS decides to treat domestic partners more like married couples, some could find out later that they owe taxes because they weren't entitled to tax breaks they claimed.

"It's so bad that I don't know if I'd be able to file a return for these folks," said Kathleen Wright, a Bay Area tax attorney and professor at San Jose State University. She and others recommended filing for an extension, in hopes that the IRS will clarify the rules.

And that doesn't even touch the issues that arise if one partner donates a kidney to the other.

UPDATE, 2-28: No income-splitting, says IRS memo.

      Bookmark: del.icio.us • Digg • reddit