| Case Analysis Newsletter - June 2006 |
The question: For tax year 2005, is a California individual who is a registered domestic partner under the California Domestic Partner Rights and Responsibilities Act of 2003 required to include in gross income all of his or her earned income for 2005 or one-half of the combined income earned by the individual and his or her domestic partner? CONCLUSION An individual who is a registered domestic partner in California must report all of his or her income earned from the performance of his or her personal services. CA amendments to the statute—referring to the “date of marriage” as being equivalent to “the date of registration of a domestic partnership”—do not equate marriage with partnership for federal income tax purposes. Accordingly, such partners cannot file separately reporting one-half of community income. Link to the IRS Ruling: http://www.irs.gov/pub/irs-wd/0608038.pdf |
Letter Rulings Waiving the 60 Day Limit: 200601041 (rollover not completed due to a misunderstanding with employer), 200601044 (bank miscommunication), 200601047 (received incorrect communication about the length of the rollover period), 200601049 (not aware that an annuity of late husband was an IRA), 200601053 (plan sponsor did not have her current address) and 200604038 (where taxpayer was depressed as a result of a divorce). Letter Ruling Denying: 200601042 where the taxpayer asked for relief because the decline in the value of the stock that was in her IRA from a prior employer so depressed her that she stopped opening mail from the company and the IRA’s manager. Unfortunately for her, one of the letters she failed to open included a check closing out her IRA. The Service’s succinct summary of reason for denial: “The information presented demonstrates that, although it was within her reasonable control, she did not pay attention to correspondence from her former employer which resulted in her being unaware that a distribution of her retirement benefits had been made by her former employer. These circumstances do not justify the granting of a waiver of the 60-day limit.” |
Spouse attempting to make a separate liability election is denied a refund of taxes she paid to help satisfy a tax liability caused by her husband even though her payments exceeded her separate share of the liability. Divided court rules that wife is not entitled to refund of amounts taken from her share of community property that were used to pay for husband's tax understatements under §6015(g) and that she was not entitled to any refund under §6015(A) even though the lower court had previously granted her such relief. The court noted that the terms of Section 6015 (g) (3) had previously been contained in former §6015(e) (3) (A) and were removed from §6015(e) specifically to make it clear that the authority to make credits or refunds is intended to be applied administratively and in all courts. Read More: http://www.ustaxcourt.gov/InOpHistoric/ordlock.TC.WPD.pdf |
This is a good example of how sloppy funding and careless administration of family limited partnerships can result in adverse gift tax consequences. The application of the step-transaction doctrine did not disregard the recognition of the partnership under the applicable state law but merely applied federal tax law principles to the partnership. As a result, the gifts are considered to be of the underlying assets thus creating gift tax liability. Read More: http://www.ca8.uscourts.gov/opndir/06/01/051118P.pdf |
The Court also noted that the Tax Court had completely ignored the significant value Blount represented to the corporation, such as the effect on BCC of losing Blount's leadership, connections, and general know-how, but because the Tax Court's valuation was within the range of values suggested by the experts in the case, the result was not clearly erroneous. Read More: http://www.ca11.uscourts.gov/opinions/ops/200415013.pdf |
In a Private Letter Ruling, the Service agreed with an order by a local probate court directing the estate taxes on both an Exempt Marital Trust and a Nonexempt Marital Trust to be paid entirely from the Nonexempt portion. While this was always thought possible—Lawgic has specific language directing this result—this ruling allowed that treatment even when the appropriate language was not in the document, but rather superimposed onto it by a court order. Use of Nonexempt assets to pay tax on the Exempt Marital Trust (for which the predeceasing spouse’s exemption was used in a Reverse QTIP election) maximizes the use of both spouses’ GST exemptions. Read More: http://www.irs.gov/pub/irs-wd/0543037.pdf |
By Jeffrey S. Levin Partner, Holland & Knight LLP, New York. Read the Publication: http://www.hklaw.com/content/whitepapers/deductions.pdf |
IRS addresses 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 registered domestic partner in accordance with § 6110(k)(3) of the IRC.
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