Treatment of Community Income for Spouses Living Apart (Part I) — footnotes

¹ The proposed regulations issued in 2002 (REG-15054-1 (1/22/02)) required a separate return be filed by a requesting spouse, based on language in Patti Ann Ollestad, TC Memo 1996-139. However, the final regulations make it clear that all that is required under Sec. 66 is that no joint return be filed, even if no return was filed for the year in question; see TD 9074 (7/10/03) and Regs. Sec. 1.66-4(a)(1)(i). 2

² Of course, if M and C filed a joint return, they would be jointly and severally liable for all of the tax due, despite the source of the income. If they do not, each would be liable only for the tax due on the return they individually filed; see Sec. 6013(d)(3); see also The Willis Corp., TC Memo 1969-36, and Hilda Gayer, SD CA, 6/1/53. Sec. 6015 also provides relief for “innocent spouses.” However, Sec. 66 differs from Sec. 6015 in several ways. Sec. 66 applies only to spouses living in community property states who do not file a joint return, and it operates to exclude the innocent spouse’s share of community income earned by the other spouse (only one provision, equitable relief under Sec. 66(c), excuses tax liability). In contrast, Sec. 6015 applies only when a joint return is filed and operates to excuse an “innocent spouse” from joint and several liability for all or a portion of the tax due on a joint return. Sec. 6015 can be used by married taxpayers, regardless of their state of residency.

³ P.L. 96-605, Section 101(a).

⁴ P.L. 98-369, Section 424(b)(1).

⁵ See Regs. Secs. 1.66-1 through -5 (TD 9074, note 1 supra).

⁶ Rev. Proc. 2003-61, 2003-2 CB 296.

⁷ See IRS Pub. 555, Community Property (June 2002).

⁸ See Martin v. Martin, 752 P2d 1026 (AZ Ct. App. 1998); CA Fam. Code Section 771(a).

⁹ Separate property generally is property (1) acquired by one of the spouses before the marriage, (2) inherited or received as a gift by one of the spouses during the marriage, (3) purchased with one of the spouse’s separate funds or (4) exchanged for separate property; see Pub. 555, note 7 supra.

¹⁰ See Pub. 555, note 7 supra.

¹¹ A summary of the UMPA can be found on the website of the Uniform Law Commissioners, at www.nccusl.org/Update/uniformact_summaries/
uniformacts-s-umpa.asp.

¹² See Erlanger and Weisberger, “From Common Law Property to Community Property: Wisconsin’s Marital Property Act Four Years Later,” 1990 Wis. L. Rev. 769, at p. 777 and Fn. 33.

¹³ See Wis. Code Section 766.59(1).

¹⁴ See Erlanger and Weisberger, note 12, supra, at Fn. 34.

¹⁵ George v. Ransom,15 Cal. 322 (1860).

¹⁶ See H Rep’t No. 96-1278, 96th Cong., 2d Sess. (1980), Section 7(II)(A) (1980); see also Regs. Sec. 1.66-2(c).

¹⁷ See H Rep’t No. 98-432(II); 98th Cong., 2d Sess. (1984), Section 5(IV)(B)(4).

¹⁸ The final regulations specify that to qualify under the living-apart requirement, the spouses must not be considered members of the same household under Regs. Sec. 1.6015-3(b). Under certain circumstances, spouses are deemed to live in the same household even if they live in separate dwellings, but are not estranged. For example, when a spouse is a member of the military and is stationed away from his or her spouse, the spouses are not considered to be living apart, because the military spouse is presumed to return to his or her spouse and again cohabitate; see Regs. Sec.1.6015-3(b)(3)(i) and (ii); and Regs. Sec. 1.66-2(c) and (d), Example 1.

¹⁹  See Regs. Sec. 1.66-2(c) and (d), Example 3.

²⁰ See Prop. Regs. Sec. 1.66-2(b).

²¹ See Regs. Sec. 1.66-2(c) and (d), Example 2.

²² See Regs. Sec. 1.66-1(b)(2).

²³ See Secs. 879(a)(1) and 911(d)(2).

²⁴ See Secs. 879(a)(2) and 1402(a)(5)(A).

²⁵ See Secs. 879(a)(2) and 1402(a)(5)(B).

²⁶ See Miller Hardy, 181 F3d 1002 (9th Cir. 1999).

²⁷ A taxpayer confronted with a Sec. 66(b) action needs to show only that he or she complied with one of the two requirements; see Regs. Sec. 1.66-3(c), Examples 1(ii) and 2.

²⁸ See Regs. Sec. 1.66-3(a).

²⁹ See Regs. Sec. 1.66-3(c), Example 1.

³⁰ See Regs. Sec. 1.66-3(c), Example 2.

³¹  John D. Shea, 112 TC 183 (1999).

³²  Daniel F. Layman II, TC Memo 1999-218.

³³ See Regs. Sec. 1.66-3(c), Example 2.