BOOM - MFS, community property and unemployment

IRS just released guidance. Q4

https://www.irs.gov/newsroom/2020-unemp ... ligibility

But what if they do not file MFS????

In re-reading this I am seeing that it is still not 100% clear but at least it is on the IRS radar.

You should exercise caution. Unofficial guidance from the IRS in the form of Q&As is not legal authority and can’t be relied on as substantial authority. See this article:

https://procedurallytaxing.com/the-proper-role-of-faqs/

The IRS often posts Q&As, then removes them, then changes them and re-posts, so you can't rely on this.

I'm sure they really don't want to give "official guidance" for this big loophole the house setup via poorly worded legislature..

Anyone see anything - fresher - concrete - real??

I’ve read some articles that have good arguments that go against the IRS Q&A.

This article looks at the foreign earned income exclusion before the community income rule was put into the Code and concludes that even then, the exclusion couldn’t be taken for a spouse’s community property share of foreign income earned by the other spouse:

https://www.tomtalkstaxes.com/p/tom-talks-taxes-april-2-2021

And this one looks at the word “received” in the unemployment compensation exclusion section and concludes that the exclusion can’t be taken against a spouse’s community property share of unemployment compensation actually received by the other spouse because the U.S. Supreme Court says that exclusions must be narrowly construed:

https://img1.wsimg.com/blobby/go/310b78c2-6a3e-4922-acb3-709b44966191/downloads/CSEA-Fogel-85(c)-Exclusion-0003.pdf?ver=1618168720908


And there’s even another argument where the IRS’s Q&A on the unemployment exclusion is opposite to an IRS Q&A that applies the same principle. Under 3101(b)(2), the additional 0.9% Medicare tax applies to a spouse’s wages over $250K that are “received” by that spouse. The IRS says in a Q&A that it doesn’t apply to a spouse’s community property share of the other spouse’s wages.

https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax

These articles aren't legal authority and can’t be relied on as substantial authority either, but they do make some convincing arguments.

I agree. Clear as Mud.

Wow!

https://www.irs.gov/forms-pubs/unemploy ... erty-state

I'm married and live in a community property state. Are we eligible for the exclusion?

If you file a Married Filing Joint return, when completing the worksheet, you should report half of your unemployment compensation and half of your spouse's unemployment compensation on line 8 of the worksheet and your spouse reports the other half of your unemployment compensation and half of his or her unemployment compensation on line 9 of the worksheet. If your joint modified AGI is less than $150,000, you and your spouse can exclude up to $10,200 each. Do not exclude more than the amount of unemployment compensation you report on your Schedule 1, Line 7.

not legal authority and can’t be relied on as substantial authority.

Since there is no better guidance anywhere and we're not going to court, the FAQ should be fine.

On the other hand if one is preparing a court case, then you must do the same thing IRS has done for its FAQ - pore over the code and preamble and figure out congressional intent and build up a reasonable case for the position you want to take that contradicts the FAQ.

Deviating too far from the FAQ would seem to be inviting challenge.

you must do the same thing IRS has done for its FAQ - pore over the code and preamble and figure out congressional intent and build up a reasonable case for the position you want to take

How do you know that the IRS did this? There is nothing in the FAQ to indicate any analysis whatsoever. At least the articles I listed in #5 above did that.

The IRS updated the FAQ's yesterday:

https://www.irs.gov/forms-pubs/unemploy ... erty-state

Of course a call to Ultra Tax confirms they are clueless on the subject. Sent a link and they will pass it on.

I think at this point we really do not need to wait for a software update. We can just split the unemployment 50/50 and report one half as earned by taxpayer and on half as earned by spouse. Does anyone disagree?

Thanks and congrats for making it to the other side in a challenging year.