26 U.S.C. § 66 — Treatment of community income

(a) Treatment of community income where spouses live apart: This rule applies when four things are all true for a calendar year: two people are married to each other at some point during the year; they live apart the whole year and don't file a joint return together for a tax year that begins or ends in that year; one or both of them has earned income for the year that counts as community income; and none of that earned income gets transferred, directly or indirectly, between them before the year ends. When all four apply, each spouse's community income for the year is treated under the special rules in section 879(a), rather than split the normal community-property way. (b) Secretary may disregard community property laws: The Secretary can refuse to apply community-property treatment to a taxpayer's income if that taxpayer acted as though they alone were entitled to the income, and failed to tell their spouse — by the tax return's due date, including extensions — about the nature and amount of that income. (c) Spouse relieved of liability in certain other cases: Under Treasury regulations, if an individual didn't file a joint return, didn't report an item of community income that would normally be treated as the other spouse's income under section 879(a), can show they didn't know and had no reason to know about that income, and it would be unfair given all the facts to make them include it — then that income is instead included in the other spouse's gross income, not the individual's. The Secretary can also relieve someone of liability for unpaid tax tied to community income not covered by that rule, if the facts make holding them liable unfair. This relief doesn't apply if the other spouse's tax liability for the matching year was already settled through an IRS compromise under section 7122. (d) Definitions: 'Earned income' has the meaning given in section 911(d)(2). 'Community income' means income that state, foreign, or territorial community-property law treats as community income. 'Community property laws' means the community-property laws of a state, foreign country, or U.S. possession.