IMPORTANT INFORMATION FOR CALIFORNIA REGISTERD DOMESTIC PARTNERS

On February 24, 2006 the IRS issued a determination that an individual who is a Registered Domestic Partner (RDP) in California must report all of his or her income earned from the performance of personal services. However, California law changed on January 1, 2007 to treat the earned income of an RDP as community property for property law and state income tax purposes. Consequently, a California RDP must report one-half of the community income, whether received as compensation for personal services or income from property, on his or her federal income tax return. Similarly, an RDP is entitled to one-half of the income tax withheld on the income. Finally, the requirement under California law to treat an RDP's earnings as community property and thus one-half vested in the partner, does not result in a transfer of property to the partner for federal gift tax purposes.

For tax returns for 2009 and before a Registered Domestic Partner can amend prior returns to report his or her income in this manner.

Consequently, a Registered Domestic Partner in California who prepares an Offer in Compromise must include the assets of the other partner in figuring the Taxpayer's ability to pay their income taxes even if they file separate. This is because California law provides that both domestic partners have an equal interest and liability in the community property.