Sunday, January 23, 2011

Registered Domestic Partnership Tax Law Change

Hey Hey it's tax time!

Don’t you all just love to hear those words? Especially if you are an RDP, or married same sex couple in California.

Last summer the IRS passed a new revenue ruling impacting all Registered Domestic Partners in California. There have been numerous articles appearing and I even assisted in an article earlier in the year in the Bottom line.

Now, if you are an RDP, then this time may be for you, especially if one of the partner’s incomes is significantly lower than the other partner.

Under the new rule the IRS will allow the partners to split their income and deductions following community property rules. Are your eyes rolling back in your head yet? If so you need to contact me, you should because I live and breathe this issue daily!

I get contacted daily from both tax preparers and taxpayers to explain the IRS issue.
Part of the ruling is that RDP’s are able to possibly amend tax returns back to 2007, but only if there is a benefit. You do not need to do this if you would owe tax.

Remember if a return is to be amended both sides need to amend the tax returns. And in some cases one partner may owe while the other would be getting a refund. Only amend if the net gain is positive.

Also please work with an accountant that is familiar with this issue, if you don’t you could get screwed and lose possible benefits.

Also tax returns for RDP’s will need to be paper filed as there will be no way to account for the transactions and apply the breakout in an electronic format.

I have been advising clients to expect tax notices since the IRS will have no way to match up income and deductions or withholdings under this new rule. But hang in there!

We have been seeing significant benefits to our clients in this area so far with large refunds in the past. This may also be a time to consider becoming an RDP in California-or at least move here to take advantage of this ruling. Remember it’s only for California at this time.

At the end of the year I advised, from a tax standpoint, for a couple they might consider becoming an RDP. When we did the analysis of comparing them as 2 single men versus the RDP, they would have saved over $10,000 per year in taxes. I don’t know about you but that is some real savings and now allows us to do some other planning for them.

The above is just one example and we have had numerous ones in our office. It’s nice to see people leave our office with a smile and say I never knew!

My goal is to educate my clients about this ruling and the impact on them. I want them to be at parties and say I just saved thousands of dollars on my taxes!

The savings don’t necessarily work for everybody, if you have a couple where both work and the incomes are almost equal the savings if any will be minimal. But remember the work still needs to be done and factored into the tax returns.

In California beginning in 2007, RDP were required to file either a married filing joint return or a married filing separate return, the days of filing a single return in California were over. So take a look at the new rule for the IRS and make sure you also filed correctly in 2007 in California. You may find additional savings from the state.

So when doing your tax return this year ask the following questions of your preparer:

How many same sex couples and/or RDP returns do you prepare? If they answer one, run for the hills!!

Do you know the new rule?

Can I amend back returns and if so how far back can I go?
Do I have to amend both sides?
What do we do with non-community property and income?
Do we electronic file this year?
Should we become RDP’s?

The best advice I offer people that contact me on these issues is be certain to work with preparers that understand this issue and can advise you accordingly. Remember even some gay/lesbian CPA’s are not familiar with this. Don’t be afraid to make a change it’s your money!


  1. Greg, can you point me to some further reading and places where I can research this? Washington State is a community property state with RDPs - it sounds like I may be able to save clients some money!

  2. I was stunned today to find out I will lose a typical 5k refund for federal taxes. My first year filing with a RDP. Is anyone else experiencing this?

  3. Yes, I just got my tax return back and lost $11K in refunds. My tax bill went up 100% under filing with RDP and this new law - and that is with the mortgage interest deductions and plenty of other deductions. Think about it - I had a 100% tax increase under this law. This law is not good like you claim it is. Before anyone registers looking for that pot of gold, beware, this will bite you in the ass.

  4. This is not the case for everyone ...

    My partner is self-employed whereas I make a reasonably high income. The past few years have meant that his income is very low. Since I only recently heard about this change of law, I decided to try filing with my tax software this year given both our information and I was stunned: I stand to receive a very significant refund, as far as 3 years back.

    Im sorry your situation isn't that good, but I'm kicking up my heels!

  5. This is exactly why the bill should be passed. Same sex couples deserve protection like this as much as the next heterosexual couple.