To amend the Internal Revenue Code of 1986 to allow a married couple who operates an unincorporated business as co-owners to file separate returns for purposes of the self-employment tax, and for other purposes.

April 3, 2003

Mr. UDALL of Colorado introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to allow a married couple who operates an unincorporated business as co-owners to file separate returns for purposes of the self-employment tax, and for other purposes.

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

SECTION 1. FINDINGS AND PURPOSE.

(a) FINDINGS- The Congress finds that--

(1) thousands of married couples own and operate unincorporated businesses that are classified as partnerships for Federal income tax purposes; but

(2) the record-keeping and other requirements applicable to partnerships under Federal tax laws are so complex and time-consuming that many such couples instead report the results of their business operations as if the businesses involved were sole proprietorships; and

(3) such reporting not only does not meet the technical requirements of the tax laws, it also can result in other problems, including the inability of one spouse to obtain Social Security and Medicare benefits, the inability of surviving children to obtain survivor benefits under Social Security, or adverse consequences for one spouse in the event of divorce.

(b) PURPOSE- The purpose of this Act is to enable married couples operating unincorporated businesses to comply with certain requirements of Federal tax law in a manner that is more convenient and less likely to result in adverse consequences in the event of a spouses disability, the death of the other spouse, or divorce.

SEC. 2. TREATMENT OF BUSINESSES OPERATED BY HUSBAND AND WIFE.

(a) IN GENERAL- Section 761 of the Internal Revenue Code of 1986 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:

`(f) QUALIFIED JOINT BUSINESSES-

`(1) IN GENERAL- In the case of a qualified joint business conducted by a husband and wife who file a joint return for the taxable year, for purposes of this title--

`(A) such joint business shall not be treated as a partnership,

`(B) all items of income, gain, loss, deduction, and credit shall be divided between the spouses in such percentages as the spouses designate, and

`(C) each spouse shall take into account such spouse's respective share of such items as if they were attributable to a trade or business conducted by such spouse as a sole proprietor.

`(2) QUALIFIED JOINT BUSINESS- For purposes of this paragraph (1), the term `qualified joint business' means any joint venture involving the conduct of a business if--

`(A) the only members of such joint venture are a husband and wife, and

`(B) both spouses elect the application of this subsection.'.

(b) NET EARNINGS FROM SELF-EMPLOYMENT-

(1) Subsection (a) of section 1402 of such Code (defining net earnings from self-employment) is amended by striking `and' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `; and', and by inserting after paragraph (15) the following new paragraph:

`(16) notwithstanding the preceding provisions of this subsection, each spouse's share of income or loss from a qualified joint business (as defined in section 761(f)(2)) shall be taken into account as provided in section 761(f) in determining net earnings from self-employment of such spouse.'.

(2) Subsection (a) of section 211 of the Social Security Act (defining net earnings from self-employment) is amended by striking `and' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `; and', and by inserting after paragraph (15) the following new paragraph:

`(16) Notwithstanding the preceding provisions of this subsection, each spouse's share of income or loss from a qualified joint business (as defined in section 761(f)(2) of the Internal Revenue Code of 1986) shall be taken into account as provided in such section 761(f) in determining net earnings from self-employment of such spouse.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

END