IRS Recognizes Community Property Law For California's Gay Couples

In a major reversal, the Internal Revenue Service has recognized California's community property law for registered domestic partners.

The decision, which was issued in a private-letter ruling on Friday, reverses a position the IRS took in 2006, when it said California's registered domestic partners should each report on their own federal tax return only the income they personally earned, not one-half of their community income. The new decision does not require or even allow California's registered domestic partners to file their federal tax return as married filing jointly or married filing separately, as they must do with their state tax returns. They must each still file a single federal return, but each should now report one-half of their community income. Suppose one partner earns $100,000 and the other earns $60,000. In the past, each reported only the income he or she earned. In the future, each would report $80,000, which is half their combined income. Each would also be entitled to half of the combined income tax withheld from their paychecks.

The ruling, which was welcomed by Lambda Legal, could raise or lower a couple's taxes, depending on their financial status.