Community Property - RDP vs MFS

[parvitstax]

California couple

I am working on a RDP return. They will file jointly on their state return as allowed for an RDP. For the Federal return a RDP is not recognized so they will file single. My question is, IRS states that RDP's adhere to their states community property laws. Meaning both partners need to report one half of each other's incomes on each Federal return. 

I have had a few people file Married Filing Separately (California residents). I have never shared income on their federal returns. They have never been audited or faced any issues from IRS. Why does an RDP have to report shared community property (W2, 1099G, etc..) income but MFS do not? 

[jeffmcpa2010 · Accepted solution]

Because it is the Law.

And BTW you have been preparing your MFS returns incorrectly, and as a tax practitioner, you are charged with preparing returns correctly even when inconvenient.

[BobKamman]

The speed limit on my drive to work is 40mph but I go 50 and people pass me all the time.  Why are none of us pulled over?  

[George4Tacks]

Because you don't live in California?

[parvitstax]

@jeffmcpa2010 It had nothing to do with convenience. It was more lack of knowledge (blame the education requirements in place). Moving forward will have to report the PITA shared community property. I'm just confused why IRS has not once required an amendment or even FTB for that matter. 

So the only benefit of MFS is if you want to separate capital gains or other income from assets prior to marriage? Seems very complicated and should be one of the most expensive returns to file.

[parvitstax]

@jeffmcpa2010 How do you prepare MFS if the spouses are not talking to each other? Impossible to get the other partner's reported/shared income. Is it even possible? What should we as preparers or the client do?

[BobKamman]

@parvitstax 

How do you prepare MFJ if the spouses are not talking to each other?

The most recent example of a benefit of filing MFS returns is the $150K limit on AGI for exclusion of unemployment -- regardless of whether it's MFS or MFJ.  

[parvitstax]

@BobKamman I don't understand how that answers the question 

[jeffmcpa2010]

Under normal circumstances there is no tax benefit to married filing separate in community property states.

[sjrcpa]

Do they live together? if not, the "community" may have been severed.

[parvitstax]

Yes they live together. They file Jointly in CA as RDP