[Congressional Record Volume 149, Number 31 (Wednesday, February 26, 2003)]
[Extensions of Remarks]
[Pages E290-E291]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTRODUCTION OF THE FAMILY FARM TAX SIMPLIFICATION ACT OF 2003

                                 ______
                                 

                           HON. EARL POMEROY

                            of north dakota

                    in the house of representatives

                       Tuesday, February 25, 2003

  Mr. POMEROY. Mr. Speaker, I rise today to introduce the Family Farm 
Tax Simplification Act of 2003, legislation that will allow married co-
owners of family farms to significantly reduce the amount of time it 
takes to prepare a correct income tax return and to provide both 
spouses with Social Security and Medicare coverage.
  As ranking member of the Ways and Means Oversight Subcommittee, I am 
pleased that we held a hearing on this issue earlier in the month and 
that, today, we are able to quickly move forward and act to simplify 
the tax law. I am honored to have the Oversight Subcommittee Chairman 
Houghton join me in co-sponsoring this bill.
  The National Taxpayer Advocate has reported that approximately 3,000 
family farmers in North Dakota may not be eligible for Social Security 
and Medicare benefits because of the onerous partnership tax rules 
associated with preparing the return that allows both spouses to pay 
into the Social Security and Medicare systems. The IRS estimates that 
it takes the average partnership approximately 165-200 hours to prepare 
its return.
  As a result, some family farms have chosen to file a sole proprietor 
return, attributing all income to, and paying self-employment taxes on, 
only one spouse. Unfortunately, when this occurs, the other spouse will 
not be covered under the Social Security and Medicare systems. Many, 
many hard-working couples are getting a bad deal under the current 
system, and they will not find out about it until it is too late.
  For example, take a family farm run equally by husband and wife. If 
the business files a return with the husband as sole proprietor, he 
would be awarded Social Security disability benefits if he becomes 
disabled, alleviating some of the financial burden of his disability on 
the family. However, if the wife becomes disabled, she is unable to 
collect Social Security disability. By not collecting this benefit, the 
business is further financially disadvantaged.
  Current law puts husband and wife businesses in a serious dilemma 
with a difficult choice under our current tax return filing rules. If 
they file a partnership return which is technically correct they face 
hundreds of hours in tax return preparation and/or very expensive 
charges from a tax attorney or accountant. If they file a sole 
proprietorship return, which is technically not correct, one of the 
spouses loses coverage for Social Security disability benefits, Social 
Security survivorship benefits, and Medicare benefits.
  The IRS has been ``winking'' at letting couples file as a sole 
proprietorship since there generally is no tax liability difference 
between the two approaches to filing. In fact, these couples are 
subject to serious civil and criminal penalties for filing incorrect 
returns. This is just a plain, bad arrangement.
  The solution is quite simple. The tax law needs to be changed to 
allow a couple to file a simple return with income attributed to both 
spouses and both spouses paying into the Social Security/Medicare 
system.

[[Page E291]]

  The Family Farm Tax Simplification Act of 2003 would allow a married 
couple to elect to file a joint Form 1040 tax return--through which 
each spouse is treated as a sole proprietor of the business, and each 
spouse is allocated part of the farm's business income, gain or loss. 
By offering this election, both spouses are able to pay self-employment 
taxes and, thus, can both be covered by the Social Security and 
Medicare systems. With very few exceptions, the proposal would not 
affect a couples' total income tax liability nor their total Social 
Security/Medicare tax contribution.
  Finally, I have asked the Taxpayer Advocate to provide the Oversight 
Subcommittee with more information on how legislation, such as I am 
introducing today, might apply in the case of non-farm small 
businesses. I will be receiving a State-by-State analysis of such firms 
and a description of how the commonly-used Schedule C could be modified 
to simplify returns for these taxpayers. I would hope that tax 
simplification reforms provided in my bill could be expanded to other 
types of small family-owned firms.
  I look forward to working with my colleagues to help family farmers 
receive Social Security and Medicare benefits. I hope my colleagues 
will join me in passing this important legislation.

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