Chief Counsel Reiterates Dependency Option for Same Sex Couples

CCA 201040012

This was originally published on October 29th, 2010.

I am always on the lookout for anything that might be relevant for my mythical clients Robin and Terry, a couple of indeterminate gender and marital status, whose role in life is to help me avoid awkward pronoun problems.  I introduced them in my post on CCA 201021050, which calls for income splitting for California domestic partners.  They also appear in my post on Gill v OPM, which declared a portion of the Defense of Marriage Act unconstitutional.  Incidentally the Justice Department filed a notice of appeal in Gill.

A CCA, by the way, is a Chief Counsel Advice.  Here is the meat of the latest CCA bearing on Robin and Terry :


The issue raised by the agent was discussed here in the National Office and with Treasury in connection with the development of Notice 2010-38. The conclusion reached at that time is that the FICA and FUTA provisions relating to “dependent” aren't really definitions in the sense of an exclusive meaning. They're instead worded to say “dependents” “include” an employee's family members. They do not preclude the possibility that other individuals could also be dependents for purposes of the FICA and FUTA exclusions.


When the issue was discussed in connection with Notice 2010-38, we viewed the PLRs (e.g., PLR 200339001 and PLR 200108010) as expanding the group of dependents described in the FICA and FUTA regs to include individuals who are dependents under section 152. Therefore, even though the PLRs can't be relied on by taxpayers other than those who got them, it is Counsel's position that a domestic partner who is a dependent of an employee under section 152 is also a dependent for purposes of the FUTA exclusion. Thus, the value of the health coverage for the domestic partner isn't FUTA wages.

In order for someone to be your dependent you must meet three tests - relationship, support and gross income.  One of the possible relationships is "member of your household" (with the quaint caveat that the household composition not violate local law).  So if Robin provides more than 1/2 of Terry's support and Terry's gross income is below the threshold (currently $3,650) Terry can be Robin's dependent.  This will qualify Robin for the more favorable head of household rates and exempt from payroll and withholding the health benefits that Robin's employer provides to Terry.  To be someones dependent for medical purposes, however, does not require that you meet the gross income tax.  So Terry could have substantial income and still be a dependent for purposes of the medical benefit exclusion.

An interesting question is what is going to happen to California domestic partners who have benefited from this technique.  Thanks to CCA 201021050 Terry will now be taxed on 1/2 of Robin's income and presumably will no longer qualify as a dependent.  I can hear somebody howling "That doesn't make any sense."  The answer to that is that making sense is not a requirement.