- 9 -
2. Federal Taxation of Income Paid Pursuant to Rights in
Community Property
State law determines the rights of persons to income and
property, and Federal law governs the Federal taxation of those
rights. United States v. Natl. Bank of Commerce, 472 U.S. 713,
722 (1985); United States v. Rodgers, 461 U.S. 677, 683 (1983);
Aquilino v. United States, 363 U.S. 509, 513 (1960). Income is
taxed to the person who has the right to receive it. Poe v.
Seaborn, 282 U.S. 101, 111-112 (1930); Lucas v. Earl, 281 U.S.
111, 114 (1930). In Poe v. Seaborn, the U.S. Supreme Court held
that, under community property law in the State of Washington,
each taxpayer spouse owned an undivided one-half interest in the
income earned by each spouse during the marriage and was liable
for income tax on that one-half.8
7(...continued)
working. For example, in the matured pension
situation, if the employee can receive retirement pay
in the amount of X dollars without working, then his
actual compensation for services rendered is not the
amount of his paycheck, Y dollars, but Y minus X
dollars. This is nothing more than a reapplication of
the ‘benefits foregone’ formula of Stenquist (21
Cal.3d. 779, 148 Cal.Rptr. 9, 582 P.2d 96). [Fn.
omitted.] Therefore, rather than penalizing the spouse
for not retiring, the contrary is true--the community
is being penalized because it is forced to subsidize
the employee spouse’s salary, which becomes his
separate property.” * * *
8 Poe v. Seaborn, 282 U.S. 101 (1930), gave married
taxpayers in community property States the tax advantage of
income splitting. In 1948, to reduce the disparity between
community property and noncommunity property States, Congress
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011