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Registered Domestic Partners

Federal tax law does not recognize same sex relationships, even though several states recognize registered domestic partners or same sex marriage.  Sexual orientation is a question I don’t ask of my clients.  In those situations where I know of a gay or lesbian relationship, I do not ask about the formality or legality of their relationship—it is none of my business.

Washington, California and Nevada have all passed some form of registered domestic partner/same sex marriage law.   They are also Community Property States.  The state legislation grants community property rights to these relationships. 

The IRS has directed that the community income be split between each partner.  It further advises that tax returns for years beginning before June 1, 2010 may (but do not have to) be amended to split the community income between the partners.

This raises several issues for my practice, as I practice in Washington, one of the three affected states.  First, I need to ask the question of all of my “single” clients, unless I know of their orientation and their relationships.  Second, for same sex couples, I need to inquire about their legal status.  Where I know the couple are registered domestic partners, I must split the community income for 2010, and advise them that amending 2008 and 2009 is an option (Washington domestic partner law was effective in 2008). Where applicable, I will also need to insist on doing the tax work for both partners.

Compliance becomes a greater problem.  I can just see the IRS document matching notices when the Forms W-2 do not match the tax returns. E-filing is probably not possible, so I must include Form 8948.  What about Schedule C income?  It would be split for income tax purposes, but it seems that for SE purposes it all will be taxed to the person who earns the income.  More tweaking the tax software and future “love letters” from the IRS. 

Has anyone else considered this and how to approach it? I am very uncomfortable being this intrusive with my clients, especially where someone does not want to “come out of the closet?”

Bradley W. Kirschner, CPA

February 24, 2011