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The IRS Changes the Tax Treatment of Domestic Partners in Washington, Nevada and California  


In 2010, the Internal Revenue Service announced it was changing its treatment of income earned by registered domestic partners (RDPs) who reside in the states of Washington, Nevada and California. 

The IRS will now apply the community property laws in the same way it has long applied those laws to different-sex married couples.  That means, if you are an RDP in any of these states, your community income and expenses must be split between each partner. This treatment is not elective and, at the federal level, RDPs cannot file a joint return.


Why Washington, Nevada and California?  In order for this tax treatment to apply, two things must be present.  One, the state must be a community property state. Two, the state must have specific state statutes recognizing the existence of domestic partners.  These three states are the only states at the current time that satisfy these two requirements.


What is a registered domestic partnership? RDPs may be same sex or different sex couples. The key item is that the partnership must be registered. If the partnership is not registered, the new IRS rules do not apply. In Washington, qualifying as a registered domestic partnership means filing a "Declaration of State Registered Domestic Partnership" with the Secretary of State.  Also, the State of Washington has a reciprocity statute that recognizes registered domestic partnerships from different states.


What is the impact on your federal income taxes?  The requirement to split community income in Washington, Nevada and California can provide income tax savings.  This is particularly true if one partner has significant income and the other partner has much less income.  On the other hand, if each partner has about the same income the tax savings could be slight or additional tax may be due.  How the new treatment will affect your taxes depends on your particular facts and circumstances.  Please remember, RDPs cannot file a joint return for federal income tax purposes.


The requirement to split community income in Washington, Nevada and California for RDPs is important to know.  It is one issue that should be considered when couples are thinking of registering as domestic partners.  Unfortunately, the specifics of how the splitting of community income will affect your income over the years are complex. Ask your tax advisor for details or contact Gary Holcomb, Director of Fiduciary Services at Berntson Porter & Company at 425-289-7636.  Berntson Porter has the capability to guide you and your partner through this complexity to determine the overall income tax impact.

About Berntson Porter & Company, PLLC

Berntson Porter & Company, PLLC is in its 26thth year as a premier Certified Public Accounting and business consulting firm that provides tax, assurance and a wide range of consulting services to closely held businesses and their owners throughout the Pacific Northwest, Alaska, Hawaii and California.



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