BILL ANALYSIS
AJR 29
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AJR 29 (Feuer)
As Amended June 29, 2010
Majority vote
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|ASSEMBLY: |61-8 |(April 22, |SENATE: |24-11|(July 1, 2010) |
| | |2010) | | | |
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Original Committee Reference: REV. & TAX.
SUMMARY : Asks the Internal Revenue Service (IRS) to issue a Revenue
Ruling requiring individuals in a same-sex marriage or registered
domestic partnership to each report half of their community income
on their federal returns.
The Senate amendments delete the Assembly version of this
resolution, and instead:
1)Ask the IRS to defer to California law on the treatment of
property belonging to same-sex spouses, so that for tax years
beginning after December 31, 2010, when filing separate federal
income tax returns, each same-sex spouse must include in his/her
gross income one-half of the community's income.
2)Request that, for tax years beginning before January 1, 2011, the
Revenue Ruling provide that same-sex married couples may, but are
not required to, amend their returns to report income in
accordance with the Revenue Ruling.
EXISTING FEDERAL LAW provides, per IRS Chief Counsel Advice
201021050 (2010 Memorandum), that California registered domestic
partners (RDPs) should each report one-half of their community
income on their federal income tax returns.
EXISTING STATE LAW :
1)Provides that, as a general rule, all property acquired by a
married person during the marriage while domiciled in California
is community property. As a result, a spouse in California who
files his/her tax return separately must include in gross income
one-half of the combined community income of both spouses.
2)Provides that RDPs have the same rights, protections, and
benefits, and are subject to the same responsibilities,
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obligations, and duties under law, whether they derive from
statutes, administrative regulations, court rules, government
policies, common law, or any other source of law, as are granted
to and imposed upon spouses.
3)Requires RDPs who file separate income tax returns to each report
one-half of the combined community income earned by both domestic
partners, as spouses do, rather than their respective individual
incomes for the taxable year.
AS PASSED BY THE ASSEMBLY , this resolution:
1)Contained multiple findings and declarations noting, among other
things, that:
a) On February 24, 2006, the IRS issued a memorandum (2006
Memorandum) indicating that an individual who is a RDP in
California must report all of his/her income earned from the
performance of his/her personal services, notwithstanding the
California Domestic Partner Rights and Responsibilities Act of
2003; and,
b) For federal income tax purposes, California RDPs may not
claim a community property interest in the income of both
partners, but instead have to report all of each RDP's income
separately, without reference to the income of the other
partner.
2)Asked the IRS to reconsider the 2006 Memorandum and to issue a new
memorandum based on the fact that settled federal law acknowledges
the state's role in defining property rights.
3)Requested that, consistent with established legal precedents, the
IRS defer to California law on the treatment of property belonging
to RDPs and same-sex spouses, including the existence of community
property, so that when filing separate federal income tax returns,
each RDP and same-sex spouse should include in his/her gross
income one-half of the community's income.
FISCAL EFFECT : Unknown
COMMENTS : The author has provided the following statement in
support of this resolution:
This measure seeks equal federal tax treatment for
same-sex couples. Specifically, it asks the IRS to issue
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a binding Revenue Ruling that for federal income tax
purposes, California registered domestic partners and
same-sex married couples must claim a community property
interest in the income of both partners, instead of
reporting all of each partner's income separately without
reference to the other partner's income.
Prior to the [2010 Memorandum], for federal income tax
purposes both California registered domestic partners and
same-sex spouses were required to report their incomes
separately and without reference to each other, and could
not claim a community property interest in their incomes.
As a result, in cases where partners or spouses were in
different tax brackets, the partners would pay more in
federal taxes. This faulty interpretation of the law was
set forth in an IRS Memorandum from February 24, 2006.
Now that California registered domestic partners must,
for federal income tax purposes, claim community property
rights in their income under the [2010 Memorandum], this
measure seeks the same treatment for California same-sex
spouses.
Committee Staff Comments:
1)Community Property Income: In community property states like
California, property that spouses acquire during their marriage is
generally regarded as owned by them together, with each owning an
undivided interest in the whole property. Similarly, income from
the property is divided equally between them. While each state
has different rules for classifying income as either separate or
community property, under the general rule, salaries, wages, and
other compensation for the services of either spouse are
considered community income. Thus, if a married couple residing
in a community property state files separate returns, one-half of
the community income must be reported by each spouse.
2)Treatment of RDPs under California Law: Existing law provides
that RDPs have the same rights, protections, and benefits, and are
subject to the same responsibilities, obligations, and duties
under law, whether they derive from statutes, administrative
regulations, court rules, government policies, common law, or any
other source of law, as are granted to and imposed upon spouses.
This includes community property rights. Thus, RDPs who file
separate income tax returns must each report one-half of the
combined income earned by both domestic partners, as spouses do,
rather than their respective individual incomes for the taxable
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year.
3)The 2006 Memorandum: On February 24, 2006, the IRS's Office of
Chief Counsel issued a memorandum addressing the manner in which
the California Domestic Partner Rights and Responsibilities Act of
2003 is to be taken into account in computing the federal income
tax of a RDP. Specifically, the 2006 Memorandum addressed the
question of whether a California RDP is required to include in
gross income all of his/her earned income or one-half of the
combined income earned by the RDP and his/her partner. The 2006
Memorandum concluded that a California RDP must report all of
his/her income earned from the performance of his/her personal
services. In reaching this conclusion, the 2006 Memorandum
acknowledged that, in 1930, the United States Supreme Court held
that a married couple in Washington was entitled to file separate
returns, each treating one-half of the community income as his/her
respective income. Poe v. Seaborn, 282 U.S. 101 (1930). (See
also United States v. Malcolm, 282 U.S. 792 (1931), which applied
the holding in Poe v. Seaborn to California's community property
regime.) Nevertheless, the 2006 Memorandum concluded, with little
explanation, that, "The relationship between [RDPs] under
[California law] is not marriage under California law. Therefore,
the Supreme Court's decision in Poe v. Seaborn does not extend to
[RDPs]."
4)The 2010 Memorandum: On May 28, 2010, the IRS's Office of Chief
Counsel issued a new memorandum reversing the position taken in
the 2006 Memorandum. Specifically, the 2010 Memorandum noted:
By 2007, California had extended full community property
treatment to registered
domestic partners. Applying the principle that federal law
respects state law property
characterizations, the federal tax treatment of community
property should apply to
California registered domestic partners. Consequently, for tax
years beginning after
December 31, 2006, a California registered domestic partner
must report one-half of the
community income, whether received in the form of compensation
for personal services
or income from property, on his or her federal income tax
return.
5)What Would This Joint Resolution Do?: This resolution asks the
IRS to issue a Revenue Ruling applying the legal analysis and
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conclusions of the 2010 Memorandum to both California RDPs and
same-sex married couples. As the author states, "The IRS Chief
Counsel Advisory issued on May 28, 2010 deferred to California
community property law and granted equal federal tax treatment to
California registered domestic partners filing separately, but was
silent as to treatment of same-sex married couples. A CCA may not
be cited as precedent. By contrast, an IRS Revenue Ruling
establishes a precedent. This resolution requests a Revenue
Ruling that requires both California registered domestic partners
and same-sex married couples to report one-half of the community
income on each of their federal income tax returns."
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098 FN: 0005123