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Wilmington NC CPA Accountant comments on Domestic Partnership IRS Private Revenue Ruling

Wilmington NC CPA accountant comments on Domestic Partnerships

Gary Bode CPA: we stay on top if IRS Private Letter Rulings to see emerging tax trends. If you'd like a free consult with a proactive Wilmington NC CPA / accountant. please call us at 399-2705.

Recently the IRS issued a Private Letter Ruling stating it will honor California’s community property laws, for one Domestic Partnership, for federal taxation.   The IRS also issued two Chief Counsel Advice memorandums that support this Ruling.

  • IRS Private Letter Rulings clarify a specific issue to a single taxpayer, in this case a registered Domestic Partnership in CA.  The ruling does not have the force of an IRS regulation.  But it can be used as a precedent in tax court cases.  So, it seems the IRS will eventually extend the ruling to all of CA and then States that support Domestic Partnerships.  NC does not support them BTW, so our gay and lesbian partnerships are not likely to be affected.  Chapel Hill allows Domestic Partnership registration though.
  • Domestic Partnerships are usually between same sex couples in States that don’t allow marriages for them.  Marriage generates hundreds of State legal benefits/obligations, and over a thousand on the federal level.  Domestic Partnerships usually bestow a lesser number of legal rights than marriage.

IRS Quirks: Some Domestic Partnerships could pay less than married couples filing jointly

Domestic Partners can’t file as married on their IRS form 1040s, although they must do so on CA state returns.  Up to this new Private Letter Ruling, each partner reported their own income on separate federal tax returns.  Now each domestic partner will still file their own return, go figure, but report one half of the couple’s income.  So twice the federal tax preparation as a married couple.  And with an interesting quirk!  An unintended result:  one scenario, where partner A makes a great living and the Partner B stays home, could mean this Domestic Partnership pays less federal tax than an identical married couple.

We’re a Wilmington NC CPA firm that prepares Private Letter Rulings.  And follow others carefully to see emerging IRS taxation trends.  Because we believe in proactively positioning our tax clients.  If you’d like a free initial consult with a CPA tax accountant, please call us at 399-2705.

Of course, since NC doesn’t recognize Domestic Partnerships, there would be no sense, at this time, to request a Private Letter Ruling on this issue.  I doubt any Wilmington NC CPA firm or accountant would do so.  Tax positioning with an eye towards the best economic result for two people is all that is possible.  But Private Letter Rulings can be requested for any taxation issue.  Sometimes, as with the one in this posting, they try to set precedent.  But generally, they can be a useful tool to pre clarify a currently vague tax regulation, sometimes exploiting loopholes before they even open.  We believe current tax preparation is the start of future tax positioning.

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