Domestic Partner Benefits - Tax Implications

[Everett Moreland]

See Private Letter Rulings 9850011 (September 10, 1998), 9717018 (January 22, 1997), 9603011 (October 18, 1995), 9242012 (July 20, 1992), 9231062 (May 7, 1992), 9109060 (December 6, 1990), and 9034048 (May 29, 1990).

Tax Analysts states that an IRS Field Service Advice Memorandum has been released on this, but I haven't seen it.

As to taxation, Treasury Regulation 1.61-21(B)(1) and (2) states that the fair market value of the fringe benefit, less the amount the employee pays for it and also less any amount excludable by the Code from gross income, is the taxable amount. What is not clear is whether the fringe benefit for this purpose is the coverage of all persons covered by the employee's policy or just the coverage of the domestic partner. The above IRS rulings are not clear, but seem to suggest that the fringe benefit is just the coverage of the domestic partner. This is consistent with the following example in Brazelton & Kaenzig, "Taxablility of Employer-Provided Benefits to Domestic Partners Depends on Domicile," 5 J. Tax. Employee Benefits 66, 67 (July/August 1997):

"Example. Ron and Steve are domestic partners. Ron's employer extends employee benefits to domestic partners at their marginal cost. Steve purchases a health insurance plan through Ron's employer for $120 per month, whereas he would pay $330 on the open market. Ron will have gross income of $210 ($330 FMV less $120 cost) each month attributable to the savings on the health insurance."

[Guest L Mog]

How are domestic partner benefits (same sex) taxed to the employee? Where can I find the IRS ruling? Is the employee taxed if they are already at the family status with the benefit vs. an individual adding a partner, taking them to the 2 person rate.

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Lisbeth A. Mog

[Guest RARogers]

I think (but am not completely sure) that the value of the benefit that the employee takes into income is the group value of the benefit (not what the d. partner would have to pay in the market for the individual contract), less amounts the employee paid for the benefit on an after-tax basis. See PLR 9109060 (December 6, 1990)referred to above.