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Under a community property regime, each spouse is entitled
to file a separate Federal income tax return. If separate
returns are filed, then generally each spouse must report half of
the community income, and each spouse is liable for Federal
income taxes on that share. United States v. Mitchell, 403 U.S.
190, 196-197 (1971); Hardy v. Commissioner, 181 F.3d 1002 (9th
Cir. 1999), affg. T.C. Memo. 1997-97; Johnson v. Commissioner, 72
T.C. 340, 343 (1979).
Under certain circumstances, section 66 provides that a
taxpayer may be relieved of liability from Federal income tax on
community property income earned by a spouse. Section 66(a)
provides that community property income may be treated as the
income of the spouse who rendered the personal services when the
income is not transferred between the spouses and the spouses
live apart and do not file a joint return. Section 66(b) allows
the Secretary to disallow the benefits of community property laws
if the taxpayer acted as if he were solely entitled to the income
and failed to notify his spouse of the nature and amount of the
income before the due date for filing the return. Section 66(c)5
provides as follows:
5 Sec. 66(c), as amended by the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3201(b), 112 Stat. 739, as reflected above, is effective for any
liability for tax arising after July 22, 1998, and any liability
for tax arising on or before that date but remaining unpaid as of
that date.
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Last modified: May 25, 2011