How Informal Marriage or Common Law Marriage

Affects Filing Status

Alan D. Campbell

Troy University – Montgomery Campus

Form 1040 U.S. Individual Income Tax Return

• When a tax preparer prepares a U.S. individual income tax return, the tax preparer must determine the proper filing status

• There are five possible filing statuses

Five Possible Filing Statuses

• Single• Married filing jointly• Married filing

separately• Widow(er) with

dependent child (also known as surviving spouse)

• Head of Household

Purpose of Paper

• To help tax preparers determine the proper filing status

• Especially for couples who live together

• But have not been formally married

Determining Marital Status

• State law determines whether a couple is legally married

• Texas recognizes informal marriage

• The Texas Family Code specifies the requirements for an informal marriage

Jurisdictions That Recognize Common Law Marriage

• Alabama• Colorado• District of Columbia• Georgia (if in existence

before 1-1-97)• Idaho (if in existence before

1-1-96)• Iowa• Kansas• Montana

Jurisdictions That Recognize Common Law Marriage

• New Hampshire (for inheritance purposes only)

• Ohio (if in existence before 10-10-91)

• Oklahoma (if in existence before 11-1-98)

• Pennsylvania (if in existence before 1-1-05)

• Rhode Island• South Carolina• Utah (if validated by court or

administrative order)

Statement No. 2 of the Statements on Standards for Tax Services

• A CPA must make a reasonable effort to obtain all information from the taxpayer to answer the questions on the return

• Questions include requests for information

• CPA must obtain information about filing status

Statement No. 3 of the Statements on Standards for Tax Services

A CPA must make reasonable inquiries of the taxpayer if the information provided by the taxpayer appears to be incorrect, incomplete, or inconsistent with other facts of which the CPA is aware

Reg. §1.6694-1(e)(1)

States that any income tax return preparer must make reasonable inquiries of the taxpayer if the information the taxpayer provides the preparer does not appear to be correct or complete

Penalty for Noncompliance

• For tax returns prepared after May 27, 2007, if the taxpayer’s tax liability is understated

• The penalty is the greater of – $1,000 or – 50 percent of the income

earned from preparing the return (IRC §6694(a)(1))

Defenses Against the Penalty

• The preparer had a reasonable belief that the position taken on the return was more likely than not to be sustained on its merits

• The preparer adequately disclosed the position on the return (IRC §6694(a)(2))

• The preparer had reasonable cause and acted in good faith (IRC §6694(a)(3))

Statement No. 8 of the Statements on Standards for Tax Services

Requires a CPA to use judgment to ensure that tax advice – Reflects professional

competence and – Meets the client’s needs

If the Tax Preparer Determines that the Taxpayer Is Married

• The tax preparer should advise the taxpayer of the advantages and disadvantages of filing a joint return or a separate return

• The need for good advice is even more important if the marriage is in serious trouble

If Married Couple in Texas Files Separate Returns

• Couple must report half of each spouse’s income because Texas is a community property state

• Income from separate property is generally community income in Texas

Exception 1

If the couple lived apart at all times during the year, they do not have to include community income on a separate return if – at least one spouse has

earned income during the year, which is community income, and

– the spouse with the earned income does not transfer any of the earned income to the other spouse (IRC §66(a))

Exception 2

A taxpayer does not have to include community income on a separate return if – the taxpayer had no reason

to know of the existence of such income and

– including the community income on a separate return would not be fair under all the facts and circumstances (IRC §66(c))

“Abandoned Spouse” May File as Head of Household

• Legally married at the end of the year

• Not legally separated• Has a dependent child• Has not lived with spouse at

any time during the last six months of the year

(IRC §§2(c) and 7703(b))

Widow(er) with Dependent Child

• The taxpayer’s spouse must have died in either of the two preceding tax years

• The taxpayer must have a dependent child or stepchild (IRC §2(a)(1)) and

• The taxpayer must not be legally married at the end of the tax year (IRC §2(a)(2))

First Way to Prove Informal Marriage in Texas

• File a declaration of marriage

• Use form provided by the Vital Statistics Unit of the Texas Department of State Health Services

• File at the county clerk’s office

(Texas Family Code §2.401(a)(1))

Requirements Before Filing the Declaration

• Each must be at least 18 years old (Texas Family Code §2.401(c))

• Have agreed to be married, lived together after the agreement agreement, and held out as husband and wife (Texas Family Code §2.402(b)(5))

• Must not violate the law on marrying certain relatives either by whole or half blood or by adoption (Texas Family Code §2.402(b)(4))

Second Way to Prove Informal Marriage in Texas

• Agree to be married (can be inferred from cohabitation if they hold out as husband and wife) Russell v. Russell, 865 SW 2d 929 (Tex. 1993) and Gary v. Gary, 490 SW 2d 929 (Civ. App. Tex., 1973))

• Live together in Texas after such agreement, and

• Represent themselves to others in Texas as married (Texas Family Code §2.401(a)(2))

Rebuttable Presumption That the Couple Was Not Married

• The couple lived together • Were never formally married • Did not file a declaration of

marriage at the county clerk’s office

• They have not lived together for at least two years and

• Neither party has brought an action for a property settlement (Texas Family Code §2.401(b))

Rebuttable Presumption Can Be Overcome with Evidence

• If a couple met all the requirements for an informal marriage in Texas and filed income tax returns as married taxpayers,

• The IRS would likely treat them as married taxpayers for those years

Still Married for Tax Purposes When Moving to a Different State

• If a couple has an informal marriage in Texas

• The couple will still be considered married for federal income tax purposes

• Even if the state where they moved does not recognize their informal marriage or common law marriage (Rev. Rul. 58-66)

Conclusion

• A tax preparer must exercise due diligence in determining the correct filing status for a taxpayer

• Making the correct determination is more difficult if a couple lives together without having been formally married

• In such a case, the tax preparer must determine if the couple is legally married under applicable state law

Conclusion

• A couple can prove an informal marriage in Texas in one of two ways

• A tax preparer who prepares returns for couples who live together but who have never been formally married need to study these provisions carefully and make diligent inquiries of the couple

• By doing so, the tax preparer is much more likely to determine the correct filing status