ABA Proposal for Separate Liability
Last year, the Section of Taxation for the American Bar Association, Committee on Domestic Relations Tax Problems, passed a legislative recommendation to (1) eliminate joint and several liability; (2) substitute separate liability for tax shown to be due on the joint return; and (3) repeal innocent spouse relief from liability for tax on the joint return when the liability arises from erroneous items of the taxpayer's spouse. Further resolutions were also made regarding liability in community property states but, as New York is not a community property state, those resolutions will not be discussed here in any detail. Recently, this Legislative Recommendation was passed by the House of Delegates for the American Bar Association, and is now an official policy of the ABA.
The Recommendation is that all married persons be taxed only on their own individual incomes, without liability for tax on the income of their spouses, even when they file joint returns or are residents of a community property state. In its report prepared last year before passage by the House of Delegates, the Committee emphasized that in order to separate the liability of married persons for payment of income tax on a joint return, no other changes will be required to the Code. The current rate structures and filing status system would remain unchanged, and the benefits of income-splitting for joint filers would be preserved. The "separate tax formula" as it is called, would be used to determine liability for unpaid tax with respect to a previously filed joint return. The liability will remain joint for the tax shown as due on the return unless a taxpayer elects to have the tax separately assessed. If so, the electing taxpayer will have the burden of showing how the "separate tax formula" should be applied.
If the Service later determines that there is a deficiency for a previously filed joint return, liability for subsequently assessed deficiencies will be resolved by the "item" approach. If the deficiency is caused by omitted income, only the spouse that generated the income will be liable for the deficiency. If the deficiency results from a disallowed deduction, the spouse who claimed the deduction will be liable for the deficiency to the extent that the deduction offset his income. If the husband does not have income to offset the entire disallowed deduction, the wife will be assessed the remainder of the deficiency to the extent of her income with respect to the return.
For those who are thinking that this would be too difficult and too complex for the Service to implement, it is important to remember that there is ordinarily no great difficulty in determining who generated what items of gross income. The issue of deductions may become more complex, but the allocation and apportionment of deductions between related taxpayers is routinely required in other circumstances.
The above is, of course, a reduced and simplified version of the Legislative Recommendation. Anyone who would like to obtain more information about the proposal should contact the ABA for more details. This matter is of no small significance because it affects 96% of all married individuals in America who elect to file joint returns each year.
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