There are specific regulations that govern how registered domestic partners' various types of income should be reported to the IRS. This can impact deduction allocations. Educating yourself about federal tax policies is a helpful way to ensure your RDP return is properly prepared.

When preparing RDP tax returns a preparer must carefully distinguish and allocate community income, separate income, and mixed income on each partner’s separate return taking into consideration federal law as it applies to treatment of certain types of income. One must also do these allocations and adjustments in such a way to accommodate the IRS informational return matching and the professional software used to prepare the returns.

Thus, it becomes an accounting issue. Some practitioners like to refer to this process as “forensic accounting.” You may wish to avoid the use of that term since the definition of forensic means “suitable for use in a court of law.” There are also professionals that specialize in and have degrees in forensic accounting.

Keep in mind that taxpayers sign returns under penalty of perjury. Allocating separate property income or deductions related to separate property could be interpreted by opposing counsel in a separation or divorce as a transmutation to community property. Therefore, care should be taken to properly allocate income and deductions on the separate federal returns. When making the determinations:

IRS requires Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, to be prepared and included with Form 1040 by registered domestic partners domiciled in California, Nevada, and Washington. Form 8958 is set up to list all the income, deductions, credits, etc., being reported by the two taxpayers and then these amounts are separated into columns to show how much of each item is allocated to each partner.