[Congressional Record Volume 144, Number 16 (Thursday, February 26, 1998)]
[Senate]
[Pages S1071-S1073]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO (for himself, Mr. Graham, Mr. Abraham, Mr. 
        Moynihan, Mr. Biden, and Mr. Inhofe):
  S. 1682. A bill to amend the Internal Revenue Code of 1986 to repeal 
joint and several liability of spouses on joint returns of Federal 
income tax, and for other purposes; to the Committee on Finance.


                   internal revenue code legislation

  Mr. D'AMATO. Mr. President, I rise today to introduce legislation 
with my good friends and distinguished colleagues, the senior Senator 
from New York, Senator Moynihan, Senator Graham of Florida and Senator 
Abraham. Our bill is rightfully entitled the ``Innocent Spouse Tax 
Relief Act of 1998.''
  Mr. President, this bill will bring relief to innocent spouses, 
predominantly women, women who have been held responsible now for the 
tax liabilities incurred by their husbands. Merely because they happen 
to file a joint return, they then become held hostage and are liable in 
some cases. The Finance Committee, these past several weeks, has been 
holding hearings.
  On February 11, we held hearings on how the IRS administers the tax 
law after a divorce or separation. We had a number of women who came 
forward, women who related the most shocking tales of how they have 
been harassed, how they have been pursued for overdue tax debts, not 
that they incurred but that were incurred by their husbands.
  Under the current law, when a spouse signs a joint tax return, they 
become 100 percent responsible and liable for the other spouse's tax 
errors. This law exposes the innocent spouse to incredible financial 
obligations and emotional harm that follows thereafter.
  Let me give you the case in point that one person brought to our 
attention--Elizabeth Cockrell. Elizabeth came to this country from 
Canada at the age of 28, married a commodities broker. The marriage 
lasted 3 years. Now, 9 years after her divorce--9 years after her 
divorce--the Internal Revenue Service came to her and said her husband 
owed initially $100,000 because he had taken deductions with tax 
shelters that they disallowed.
  They came after her and they said, ``You owe $500,000.'' Now, here is 
this single person--no fault of her own--she was not involved in the 
business, had no knowledge that these tax shelters would be declared 
illegal, and 9 years after her marriage they come to her and say, ``You 
owe $500,000.'' Today, as a result of the interest and penalties that 
have accrued, she is now in debt to the tune, according to the IRS, of 
$650,000.
  Her only mistake was signing a joint return with her husband. Because 
she signed that return, she became individually responsible for 100 
percent of that tax. Thus far, the IRS has only pursued her and not her 
husband and refuses to let her lawyer know that, if anything, they are 
going to pursue her husband. They have not been able to collect from 
him, so they go after her. She has a child, a job; she has community

[[Page S1072]]

roots, so she is an easy target and they go after her.
  She has done nothing wrong. She has attempted to settle with the IRS, 
but they refuse. This is just one case. But, Mr. President, let me say 
that the General Accounting Office has estimated that there are 50,000 
cases a year--every year 50,000 new cases come up.
  Every year we have innocent spouses who are being pursued, not 
because they have incurred a tax liability which they are responsible 
for but because of the arcane law they are held to, what we call joint 
and several liability. So they may have had no knowledge of the 
misdeeds or of the mistake, and they are held responsible.
  So Elizabeth Cockrell represents what is taking place repeatedly. Now 
we have literally hundreds of thousands of women who are being pursued 
by the Internal Revenue Service whose husbands or spouses may have left 
owing the IRS moneys. And now they have multiplied, in the case of 
Elizabeth Cockrell where her husband, former husband, initially owed 
$100,000, and he is now being pursued, and it is up to $650,000. Next 
year it will rise.
  So these are not nameless and faceless people; these are people, and 
90 percent of them are women. Tremendous hardship. Our bill will say 
clearly that a person can only be held liable for the income that he or 
she has earned, and the failure to report properly, yes, they will be 
held liable, but not an innocent spouse.
  Mr. President, the American Bar Association has recommended this 
legislation and, indeed, has worked with myself and Senator Graham--I 
see my colleague from Florida who has cosponsored this along with 
Senator Moynihan--and they have recommended this change. They do not 
recommend changes in the tax laws easily. They recognize that this is 
absolutely discriminatory.
  In addition, the National Taxpayers Union--300,000 members--they have 
recommended this legislation. It is long overdue.
  Last, but not least, we have hundreds of thousands of people today, 
mostly women--90 percent of them are women--who are being pursued 
improperly. The Internal Revenue Service has no choice, given the way 
the legislation now exists. Our bill would free these people from this 
unfair obligation which is now being thrust upon them. The hundreds of 
thousands of working women who are now being pursued unfairly, not 
because they have incurred any tax liability on their own, but simply 
because they were married and they were the innocent spouse of someone 
who filed incorrectly, improperly, or withheld information that they 
were not aware of.
  Mr. BIDEN. Will the Senator yield for a question?
  Mr. D'AMATO. Yes.
  Mr. BIDEN. Will you be kind enough to add me as a cosponsor?
  Mr. D'AMATO. I will be glad to add Senator Biden, the senior 
Senator--he has been here a long time, but he is not the senior 
Senator--as an original cosponsor.
  Mr. President, I ask unanimous consent to add Senator Biden as a 
cosponsor of my legislation.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I urge my colleagues to support this 
important, bipartisan proposal to improve fairness.
  We talk about fairness. I do not know when we are going to change the 
overall IRS Code, et cetera, but this certainly will restore confidence 
among taxpayers and give desperately needed relief to hundreds and 
hundreds of thousands of working moms out there who are now being 
pursued improperly.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1682

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. REPEAL OF JOINT AND SEVERAL LIABILITY ON JOINT 
                   RETURNS.

       (a) In General.--Paragraph (3) of section 6013(d) of the 
     Internal Revenue Code of 1986 (relating to special rules) is 
     amended to read as follows:
       ``(3) if a joint return is made, the tax shall be computed 
     on the aggregate income, and liability for tax shall be 
     determined under subsection (e).''
       (b) Determination of Proportional or Separate Liability for 
     Payment of Tax With Respect to Joint Returns.--Section 
     6013(e) of the Internal Revenue Code of 1986 (relating to 
     spouse relieved of liability in certain cases) is amended to 
     read as follows:
       ``(e) Liability for Payment of Tax With Respect to Joint 
     Returns.--When spouses elect to file a joint return for a 
     taxable year, the liability for tax with respect to that year 
     shall be determined as follows:
       ``(1) Tax reported on the return.--The liability for the 
     tax computed with respect to income and deductions as 
     reported on the return shall be in proportion to the tax 
     liability which each spouse would have incurred if each had 
     reported his or her apportionable items on a separate return 
     of a married individual, provided that a payment by one 
     spouse in excess of such spouse's proportionate share of 
     liability for the tax reported on the return shall not be 
     refunded unless there is an overpayment with respect to the 
     return.
       ``(2) Liability for deficiencies imposed on the responsible 
     spouse.--Liability for a deficiency shall be imposed as 
     follows:
       ``(A) With respect to an item of income, on the individual 
     spouse to whom the item is apportionable.
       ``(B) With respect to an item of deduction, on the 
     individual spouse to whom the item is apportionable to the 
     extent that income apportioned to such spouse was offset by 
     the deduction.

     Liability for deficiency in excess of the amount allocated 
     under subparagraph (B) shall be imposed on the other spouse.
       ``(3) Apportionable items.--A taxpayer's apportionable 
     items shall be the taxpayer's share of the income and 
     deductions reportable on the joint return of the taxpayer and 
     his spouse, apportioned in the same manner as income and 
     deductions are apportioned under section 861 (determination 
     of income from sources within the United States). The 
     Secretary may prescribe regulations under which simplified 
     apportionment methods are authorized in making these 
     determinations.''

     SEC. 2. COMMUNITY PROPERTY LAWS DISREGARDED IN DETERMINING 
                   TAX LIABILITY.

       (a) In General.--Section 66 of the Internal Revenue Code of 
     1986 (relating to treatment of community income) is amended 
     to read as follows:

     ``SEC. 66. COMMUNITY PROPERTY LAWS.

       ``(a) Tax Liability.--For the purpose of determining the 
     tax liability of an individual under this chapter, community 
     property laws shall be disregarded.
       ``(b) Attribution of Income and Deductions Under Community 
     Property Law.--
       ``(1) In general.--For purposes of chapter 1, the income 
     and deductions of a taxpayer and his spouse under community 
     property law shall be allocated between the spouses under 
     rules similar to the allocation rules of section 879(a) 
     (relating to treatment of community income of nonresident 
     alien individuals).
       ``(2) Income derived from property allocated according to 
     title.--Notwithstanding paragraph (1), community income which 
     is derived from property shall be allocated in the same 
     manner as the spouses hold title to such property and not as 
     provided in paragraph (4) of section 879(a).''
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 1 of the Internal Revenue Code of 
     1986 is amended by striking the item relating to section 66 
     and inserting:

``Sec. 66. Community property laws.''

     SEC. 3. EFFECTIVE DATE.

       The amendments made by this Act shall apply to taxable 
     years beginning before, on, or after the date of the 
     enactment of this Act.

  Mr. GRAHAM. Mr. President, I join with my colleague, Senator D'Amato, 
Senator Moynihan, Senator Biden and others in cosponsoring the innocent 
spouse legislation.
  Under existing law, married taxpayers are liable for their spouse's 
Federal income taxes when they file a joint return. This is true 
regardless of which spouse earns what income, which spouse is 
responsible for expenses that qualify as deductions or credits. Each 
spouse is potentially liable for all of the couple's tax debts. You 
might ask why do couples agree to take on each other's debts. There are 
probably multiple reasons. For one, many couples want to intermingle 
all their finances as part of their marriage. Most couples filing 
jointly reduce the couple's overall tax liability. Most married couples 
do not contemplate a subsequent separation or divorce and unpaid taxes 
when they file a joint return.
  Unfortunately, separations and divorces do occur. It is in dividing 
up the assets and liabilities of the marriage that many women discover 
that their ex-husband erred on the joint tax return and that the IRS is 
in pursuit of the unpaid taxes. The Finance Committee hearings and 
reports issued by the Treasury Department demonstrate that many times 
the IRS does not focus on collecting money from the ex-husband either 
because he cannot be found as easily or because he has few

[[Page S1073]]

assets or income-earning potential. Instead, it is the innocent spouse 
who becomes the target of the collection effort. This is true despite 
the fact that when the return was completed and filed the wife may have 
had little or no income and may have had little, if any, knowledge 
about the couple's financial affairs.
  If I could use as a specific example that illustrates literally 
thousands of cases, one of the witnesses who testified before the 
Finance Committee at the February 11, 1998, meeting was Ms. Karen 
Andreasen of Tampa, FL. Here is her story. Unfortunately it is all too 
topical of many American women.
  Ms. Andreasen testified that her husband, who ironically was a former 
IRS employee and financial consultant operating his own business, had 
handled most of the family's financial affairs including completing tax 
returns. When the couple decided to divorce, Ms. Andreasen learned that 
the couple had significant potential IRS debts. She testified that her 
ex-husband had forged her name on joint returns, yet the IRS was 
holding her responsible for the tax liability resulting from her ex-
husband's business. Even though Ms. Andreasen had no individual income 
for the years in question, she had been saddled for several years with 
the obligation for her husband's taxes, and her home today remains 
subject to a tax lien.
  Why doesn't our current tax law provide protection for innocent 
spouses such as Ms. Andreasen? Well, Congress did pass what is called 
the innocent spouse rule several years ago. Under this law, in certain 
narrow circumstances, a spouse can be relieved of liability for taxes 
assessed by an IRS audit after a joint return is filed. However, its 
provisions are so complicated and narrow that few can meet all of its 
tests. There is a growing acceptance of the principle that now Congress 
needs to change the rules.
  In 1995, the American Bar Association recommended the legislation 
which is being introduced today. The House has taken a different 
approach. It has adopted as part of its IRS reform bill liberalizations 
in the innocent spouse rule for purposes of providing relief to more 
innocent spouses. Even the Treasury and the IRS have acknowledged the 
need for reform and have already taken steps to provide taxpayers with 
more information regarding the current innocent spouse rules. They have 
also suggested several statutory and regulatory changes which would 
expand the innocent spouse provisions to accommodate more cases. 
However, neither the House bill nor the Treasury's proposals will solve 
the underlying problem. We must grant individuals fair treatment where 
the individual spouse makes an error on the return. To do that, we must 
allow individuals to take responsibility for their individual share of 
the joint tax liability.

  The legislation which has been introduced today provides that all 
married taxpayers be taxed only on their individual incomes. The bill 
would not eliminate joint filing. It would not change the tax tables to 
eliminate the reduced taxes that many times accompany joint filings. 
The bill does simply say that if the IRS asserts a tax deficiency on a 
joint return, each spouse will be individually liable for his or her 
portion of the liability.
  In other words, income and deductions attributable to activities will 
be used to calculate the husband's portion of the tax liability and a 
similar calculation of the wife or ex-wife's portion of the tax 
liability.
  The bill specifically provides that it will be applicable to all open 
tax cases, including ones originating in years prior to the date of 
enactment. Mr. President, this legislation provides that its 
application will be retroactive to current open tax cases. This 
approach will guarantee relief for Karen Andreasen and the many other 
spouses who have, through no fault of their own, been placed in extreme 
financial and emotional distress.
  Repealing the joint liability of spouses will simply the tax system 
and it will give the IRS clear guidance as to where to go to collect 
tax debts.
  I want to thank Senator Roth for organizing a thorough examination of 
the IRS in preparation for markup of the Internal Revenue Service 
reform bill. The legislation Senator D'Amato, others, and I introduce 
today was generated as a result of that thorough investigation.
  Mr. President, there have been unknown thousands of innocent spouses 
who have been subjected to extreme emotional and financial distress 
solely because they filed joint returns with their spouses. This 
legislation establishes fundamental equity in providing that each 
individual is responsible for his or her own actions, but will not be 
held accountable for actions or conduct of another.
  By applying this legislation retroactively to currently open cases, 
we will provide significant and immediate relief to those who have been 
unfairly charged with taxes they did not rightly owe. We will establish 
the principle that liability for an erroneous item tracks 
responsibility and will force the IRS to collect taxes from the person 
who rightfully owes those taxes.
                                 ______