California Community Property

Jun 25, 2024 Last reply: 2 years ago 7 Replies

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Alan Kalman

I stand corrected. As such, then FTB Pub 3556 says that CA follows the federal entity (partnership or disregarded) classification. As such, you have a disregarded entity and the information on Federal Schedule Cs should flow as is to CA.

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For community property states, spouses with an LLC can either be taxed as a partnership or each spouse can file his/her own separate Schedule C.



My question is, does that same rule apply to California state taxes? It does as far as I can tell, but I haven't found anything definitive.



Thanks.



I believe your opening statement is incorrect. Page 3 of the instructions for the Form 1065 clearly states that the election to be treated as a Joint Venture is only available if "the business is co-owned by both spouses and isn't held in the name of a state law entity such as a partnership or limited liability company (LLC)." Therefore, they are a partnership and can not file their own Schedule Cs.

Stuart Bronstein's statement is correct "for community property states." In a community property state, such as California, if the spouses hold the LLC as community property, they can treat it as a disregarded entity.

See Rev. Proc. 2002-69.

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That, of course, applies to federal tax. I don't know the answer to Stuart's question, which is whether the same rule applies to California tax.

Bob Sandler

Thanks. I was thinking the rules without an LLC would be the same as with an LLC. But you're apparently right - the rules with an LLC are different. Even though the LLC is normally disregarded, it's not for this purpose.

I stand corrected. As such, then FTB Pub 3556 says that CA follows the federal entity (partnership or disregarded) classification. As such, you have a disregarded entity and the information on Federal Schedule Cs should flow as is to CA.

I think that second part is wrong.

But that's also wrong.

There's a special rule for spouse LLCs in community property states that are allowed to treat the LLC as a disregarded entity, like a sole proprietorship.

See the last part of

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In a community property state the LLC CAN be disregarded if the spouses are the only members and they own their interest in the LLC as community property. See Rev. Proc. 2002-69.

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Bob Sandler

Bob Sandler <bob snipped-for-privacy@yahoo.com wrote in news: snipped-for-privacy@4ax.com:

Thanks. I looked at that revenue ruling and it confused me.

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