In addition, each spouse is taxed upon 100% of his or her separate property income. State laws vary greatly on what property can be reached.įor income tax purposes, if spouses file separate returns, each spouse is taxed on 50% of the total community property income regardless of which spouse acquired the income. Depending on state law, creditors of spouses may be able to reach all or part of the community property, regardless of how it is titled, to satisfy debts incurred by either spouse. Spouses are also considered to share debts. Spouses may also hold separate property, which they solely own and control, but the law in the community property states does not favor this.
Thus, each spouse owns an automatic 50% interest in all community property, regardless of which spouse acquired the community property. Each spouse contributes labor (and in some states, capital) for the benefit of the community, and shares equally in the profits and income earned by the community. The theory underlying community property is analogous to that of a partnership. The Harmon decision should also apply to the Alaska system for income reporting purposes. Supreme Court ruled that a similar statute allowing spouses to elect a community property system under Oklahoma law would not be recognized for federal income tax reporting purposes. Spouses may create community property by entering into a community property agreement or by creating a community property trust. Territories of Guam and Puerto Rico are also community property jurisdictions.Īlaska has also adopted a community property system, but it is optional. The community property system has been adopted by nine states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
Effective Date(06-06-2017)ĭirector, Examination–Field and Campus Policy AudienceThis IRM section is intended to address the needs of all Service employees who are working on cases involving married taxpayers domiciled in community property states, or cases otherwise raising community property issues. Added reference to IRM 25.18.4.13 where content was moved from this IRM.Įffect on Other DocumentsIRM 25.18.1 dated Mais superseded. Updated answers to question 7 reflecting change to guidance in IRM 25.18.1.3.23. Removed references to California’s recognition of oral agreements. Moved and revised content from IRM 25.18.1.2.25 to IRM 25.18.4.13, Mortgage Reduction and Other Tracing Issues.Īdded citations concerning state non application of fraudulent conveyance to marital agreements. Revised and reorganized guidance from paragraph (1) into the remaining paragraphs and deleted redundant content.Īdded guidance to provide additional details and examples related to mixing or commingling community property with separate property. Moved content previously in Scope to new subsection titled Overview.Ĭhanged spousal references to recognize same-sex marriage.Īdded guidance to reflect same-sex marriage is valid throughout the U.
25.18.1.3 Determining if Community Property Laws Apply.25.18.1.2.4 Tax Assessment and Collection under Community Property Laws.25.18.1.2.3 Analysis of Community Property Cases.25.18.1.2 Property Rights and Federal Taxation.25.18.1 Basic Principles of Community Property Law.
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