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IRS.gov Website
Publication 504
taxmap/pubs/p504-008.htm#en_us_publink1000176086

Community Property(p24)

rule
If you are married and your domicile (permanent legal home) is in a community property state, special rules determine your income. Some of these rules are explained in the following discussions. For more information, see Pub. 555.
taxmap/pubs/p504-008.htm#en_us_publink1000176087

Community property states.(p24)

rule
The community property states are:
taxmap/pubs/p504-008.htm#en_us_publink1000176088

Community Income(p24)

rule
If your domicile is in a community property state during any part of your tax year, you may have community income. Your state law determines whether your income is separate or community income. If you and your spouse file separate returns, you must report half of any income described by state law as community income and all of your separate income, and your spouse must report the other half of any community income plus all of his or her separate income. Each of you can claim credit for half the income tax withheld from community income.
taxmap/pubs/p504-008.htm#en_us_publink1000176089

Community Property Laws Disregarded(p24)

rule
The following discussions are situations where special rules apply to community property.
taxmap/pubs/p504-008.htm#en_us_publink1000176090

Certain community income not treated as community income by one spouse.(p24)

rule
Community property laws may not apply to an item of community income that you received but did not treat as community income. You will be responsible for reporting all of it if:
taxmap/pubs/p504-008.htm#en_us_publink1000176091

Relief from liability for tax attributable to an item of community income.(p24)

rule
You are not responsible for the tax on an item of community income if all five of the following conditions exist.
  1. You did not file a joint return for the tax year.
  2. You did not include an item of community income in gross income on your separate return.
  3. The item of community income you did not include is one of the following.
    1. Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee.
    2. Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor.
    3. Your spouse's (or former spouse's) distributive share of partnership income.
    4. Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Use the appropriate community property law to determine what is separate property.
    5. Any other income that belongs to your spouse (or former spouse) under community property law.
  4. You establish that you did not know of, and had no reason to know of, that community income.
  5. Under all facts and circumstances, it would not be fair to include the item of community income in your gross income.
taxmap/pubs/p504-008.htm#en_us_publink100042486

Equitable relief from liability for tax attributable to an item of community income.(p25)

rule
In order to be considered for equitable relief from liability for tax attributable to an item of community income, you must meet all of the following conditions.
  1. You timely filed your claim for relief.
  2. You and your spouse (or former staff) did not transfer assets to one another as a part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner.
  3. Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax.
  4. You did not knowingly participate in the filing of a fraudulent joint return.
  5. The income tax liability from which you seek relief is attributable (either in full or in part) to an item of your spouse (or former spouse) or an unpaid tax resulting from your spouse’s (or former spouse’s) income. If the liability is partially attributable to you, then relief can only be considered for the part of the liability attributable to your spouse (or former spouse). The IRS will consider granting relief regardless of whether the understated tax, deficiency, or unpaid tax is attributable (in full or in part) to you if any of the following exceptions apply.
    1. The item is attributable or partially attributable to you solely due to the operation of community property law. If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief.
    2. If the item is titled in your name, the item is presumed to be attributable to you. However, you can rebut this presumption based on the facts and circumstances.
    3. You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. If you meet this exception, the IRS will consider granting equitable relief although the unpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your souse (or former spouse).
    4. You establish that you were the victim of spousal abuse or domestic violence before the return was filed, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse’s (or former spouse’s) retaliation. If you meet this exception, relief will be considered even though the understated tax or unpaid tax may be attributable in part or in full to your item.
    5. The item giving rise to the understated tax or deficiency is attributable to you, but you establish that your spouse’s (or former spouse’s) fraud is the reason for the erroneous item.
taxmap/pubs/p504-008.htm#en_us_publink1000176092
Requesting relief.(p25)
For information on how and when to request relief from liabilities arising from community property laws, see Community Property Laws in Pub. 971.
taxmap/pubs/p504-008.htm#en_us_publink1000176093

Spousal agreements.(p25)

rule
In some states spouses may enter into an agreement that affects the status of property or income as community or separate property. Check your state law to determine how it affects you.
taxmap/pubs/p504-008.htm#en_us_publink1000176094

Spouses living apart all year.(p25)

rule
If you are married at any time during the calendar year, special rules apply for reporting certain community income. You must meet all the following conditions for these special rules to apply.
  1. You and your spouse lived apart all year.
  2. You and your spouse did not file a joint return for a tax year beginning or ending in the calendar year.
  3. You and/or your spouse had earned income for the calendar year that is community income.
  4. You and your spouse have not transferred, directly or indirectly, any of the earned income in (3) between yourselves before the end of the year. Do not take into account transfers satisfying child support obligations or transfers of very small amounts or value.
If all these conditions exist, you and your spouse must report your community income as explained in the following discussions. See also Certain community income not treated as community income by one spouse, earlier.
taxmap/pubs/p504-008.htm#en_us_publink1000176096
Earned income.(p25)
Treat earned income that is not trade or business or partnership income as the income of the spouse who performed the services to earn the income. Earned income is wages, salaries, professional fees, and other pay for personal services.
Earned income does not include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered.
taxmap/pubs/p504-008.htm#en_us_publink1000176097
Trade or business income.(p25)
Treat income and related deductions from a trade or business that is not a partnership as those of the spouse carrying on the trade or business.
taxmap/pubs/p504-008.htm#en_us_publink1000176098
Partnership income or loss.(p25)
Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner.
taxmap/pubs/p504-008.htm#en_us_publink1000176099
Separate property income.(p25)
Treat income from the separate property of one spouse as the income of that spouse.
taxmap/pubs/p504-008.htm#en_us_publink1000176100
Social security benefits.(p25)
Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits.
taxmap/pubs/p504-008.htm#en_us_publink1000176101
Other income.(p26)
Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.
taxmap/pubs/p504-008.htm#en_us_publink1000176102

Example.(p26)

George and Sharon were married throughout the year but did not live together at any time during the year. Both domiciles were in a community property state. They did not file a joint return or transfer any of their earned income between themselves. During the year their incomes were as follows:
  George  Sharon
Wages  $20,000  $22,000
Consulting business    5,000   
Partnership     10,000
Dividends from separate property    1,000    2,000
Interest from community property      500      500
Totals $26,500  $34,500
     
Under the community property law of their state, all the income is considered community income. (Some states treat income from separate property as separate income—check your state law.) Sharon did not take part in George's consulting business.
Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). But because they meet the four conditions listed earlier under Spouses living apart all year, they must disregard community property law in reporting all their income (except the interest income) from community property. They each report on their returns only their own earnings and other income, and their share of the interest income from community property. George reports $26,500 and Sharon reports $34,500.
taxmap/pubs/p504-008.htm#en_us_publink1000176105

Other separated spouses.(p26)

rule
If you and your spouse are separated but do not meet the four conditions discussed earlier under Spouses living apart all year, you must treat your income according to the laws of your state. In some states, income earned after separation but before a decree of divorce continues to be community income. In other states it is separate income.
taxmap/pubs/p504-008.htm#en_us_publink1000176107

Ending the Marital Community(p26)

rule
When the marital community ends as a result of divorce or separation, the community assets (money and property) are divided between the spouses. Each spouse is taxed on half the community income for the part of the year before the community ends. However, see Spouses living apart all year, earlier. Income received after the community ended is separate income, taxable only to the spouse to whom it belongs.
An absolute decree of divorce or annulment ends the marital community in all community property states. A decree of annulment, even though it holds that no valid marriage ever existed, usually does not nullify community property rights arising during the "marriage." However, you should check your state law for exceptions.
A decree of legal separation or of separate maintenance may or may not end the marital community. The court issuing the decree may terminate the marital community and divide the property between the spouses.
A separation agreement may divide the community property between you and your spouse. It may provide that this property, along with future earnings and property acquired, will be separate property. This agreement may end the community.
In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Check your state law.
taxmap/pubs/p504-008.htm#en_us_publink1000176109

Alimony (Community Income)(p26)

rule
Payments that may otherwise qualify as alimony are not deductible by the payer if they are the recipient spouse's part of community income. They are deductible by the payer as alimony and taxable to the recipient spouse only to the extent they are more than that spouse's part of community income.
taxmap/pubs/p504-008.htm#en_us_publink1000176110

Example.(p26)

You live in a community property state. You are separated but the special rules explained earlier under Spouses living apart all year do not apply. Under a written agreement, you pay your spouse $12,000 of your $20,000 total yearly community income. Your spouse receives no other community income. Under your state law, earnings of a spouse living separately and apart from the other spouse continue as community property.
On your separate returns, each of you must report $10,000 of the total community income. In addition, your spouse must report $2,000 as alimony received. You can deduct $2,000 as alimony paid.