IRS Ruling — What Does it Mean for Iowa Same-Sex Couples?

As I posted earlier, the IRS recently issued three rulings – a “private letter ruling” and two “CCAs” (CCA = Chief Counsel Advice) that give same-sex couples in California somewhat equal treatment to opposite-sex married couples when filing federal tax returns. You may be wondering how this will affect same-sex married couples in Iowa. Here are the basics, followed by more detail:

  • The rulings allow Registered Domestic Partners (RDPs) in California to calculate their income in the same manner as opposite-sex married couples under “community property” rules (California is a “community property” state).
  • The rulings do NOT allow RDPs to file federal returns with a filing status of “married filing jointly” or “married filing separately.”
  • The rulings do not change the federal tax situation of Iowa same-sex couples because Iowa is not a community property state.

Here are some specifics about the ruling:

What the Heck are “Private Letter Rulings” and “CCAs”?
“CCA” stands for “Chief Counsel Advice” and refers to advice given by the IRS’s chief legal advisor (the “Chief Counsel”).

Private letter rulings are issued by the IRS in response to a taxpayer’s request for guidance. Technically, the ruling is only binding between the IRS and the taxpayer who requested the ruling. Meaning, private letter rulings are not precedent-setting. However, this particular private letter ruling, combined with the two memos from Chief Counsel, do seem to set precedent for RDPs in California.

What are “Community Property” laws?
For federal tax purposes, if a married couple in a community property state files “married filing separately” on their federal returns, each spouse must share equally in the other’s income and deductions. There are 9 states that follow community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Ronnie and Johnnie, an opposite-sex married couple, live in a community property state. Ronnie earns $60,000 in wages while Johnnie earns $40,000 in wages. They decide to file separate federal returns. On their separate returns, each will report $50,000 of income.

In the past, the IRS has said that community property rules did not apply to RDPs for federal tax purposes. So in the “Ronnie and Johnnie” example, if they were an RDP, they would each only report their own income on their individual returns, rather than splitting it between them.

What These IRS Rulings Do:
These rulings extend community property rules to RDPs for purposes of calculating federal income and deductions. So if “Ronnie and Johnnie” are an RDP, they must now calculate their income based on community property rules. In our example, they would each report $50,000 in income.

What the Rulings Do NOT Do:
It is very important to note that the rulings still do NOT allow RDPs to file as “married filing jointly” or “married filing separately. The only allowable filing statuses are “single” or “head of household.”

Affect on Iowa Same-Sex Married Couples:
Iowa is not a community property state, and the rulings do not deal with the issue of filing statuses. Therefore, it really has no affect on same-sex couples in Iowa. However, the rulings can be seen as a positive step toward tax equality for same-sex couples.