United States General Accounting Office

GAO Testimony

Before the Subcommittee on Oversight, House Committee

on Ways and Means

For Release

on Delivery

Expected at

2:00 p.m. EST

Tuesday

February 24, 1998

INNOCENT SPOUSE

Alternatives For Improving

Innocent Spouse Relief

Statement of Lynda D. Willis, Director, Tax Policy and

Administration Issues, General Government Division

GAO/T-GGD-98-72

Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

Madame Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss our report on the innocent

spouse provisions of the Internal Revenue Code. Like the Department of

the Treasury (Treasury), we were required under section 401 of the

Taxpayer Bill of Rights 2 to report to the Congress on certain issues

related to joint and several liability and the application of the innocent

spouse provisions.

Our comments today are based on our report, which was issued in March

1997.1

 It has findings and, in several cases, recommendations similar to

those in the more recent Treasury report.2

 Specifically, our report

discussed (1) the universe of taxpayers potentially eligible for innocent

spouse relief, (2) the Internal Revenue Service’s (IRS) practices and

procedures for handling requests for such relief, (3) whether the existing

innocent spouse provisions provide the same opportunity for relief for all

taxpayers, (4) the potential effects of replacing the joint and several

liability standard with a proportionate liability standard, (5) the potential

effects on IRS of requiring it to abide by the terms of divorce decrees that

allocate tax liabilities, and (6) the potential effects of limiting IRS’ ability to

seize community income to satisfy the tax liabilities incurred by one of the

spouses before the marriage.

Our testimony today makes the following points:

• Under current law, only about 1 percent of the couples who filed joint

returns in 1992 had additional tax assessments that potentially met the

dollar threshold for innocent spouse relief. If only divorced taxpayers

were counted, about 35,000 of the 587,000 couples with additional tax

assessments of more than $500 for 1992 may have been eligible for

innocent spouse relief. However, our estimate of 587,000 couples

represents the maximum number of couples potentially eligible for

innocent spouse relief; fewer would probably actually qualify. For

instance, some of the 587,000 couples may not have qualified for innocent

spouse protection because they knew there was a substantial tax

understatement. This knowledge would have made them ineligible for

relief even if the tax deficiency was solely attributable to the actions of

one spouse.

1

Tax Policy: Information on the Joint and Several Liability Standard (GAO/GGD-97-34, March 12, 1997).

2

Report to the Congress on Joint Liability and Innocent Spouse Issues (Department of the Treasury,

February 9, 1998).

Page 1 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

• The limited information available indicated that IRS received few requests

for innocent spouse relief and denied most of them. Although we could not

determine why few requests were made, we observed that IRS publications

provide little information on how to request innocent spouse relief and

that IRS has no specific form or process for applying for such relief.

• The current provisions may not ensure that all deserving taxpayers receive

equivalent relief. For example, the dollar thresholds for claiming innocent

spouse relief may preclude some deserving taxpayers from obtaining relief

because of the amount of their liability. We estimated that for tax year

1992, about 40,000 additional divorced couples might have been eligible

for innocent spouse relief if the dollar thresholds had been eliminated.

• One way to address concerns with the innocent spouse provisions would

be to replace the joint and several liability standard with a proportionate

liability standard. Under the joint and several liability standard, each

spouse becomes individually responsible for the entire amount of the tax

associated with a joint return. Under a proportionate liability standard,

couples would be responsible only for the taxes generated by their

individual incomes and assets. Options for administering proportionate

liability include (1) requiring all taxpayers to file separately, (2) modifying

joint returns so that each spouse’s income and deductions are reported

separately, and (3) applying proportionate liability only in cases where

there are unpaid taxes or subsequent tax assessments. Each of these

options represents a trade-off between clearly establishing each taxpayer’s

liability and the amount of paperwork and administrative burden created

for taxpayers and IRS. Each could also increase the costs of IRS’

enforcement programs.

• Requiring IRS to be bound by divorce decrees is impractical for two major

reasons. First, federal tax matters are the exclusive jurisdiction of certain

federal courts, while divorce matters are generally handled by state courts.

Thus, there is currently no legal forum where IRS and the parties to a

divorce could resolve issues relating to both tax and divorce matters.

Second, this proposal could require IRS to become involved in every

divorce settlement to ensure that the government’s interest is protected. In

1994, about 1.2 million divorce decrees were granted in the United States.

Even if IRS were bound by divorce decrees, these decrees could be

manipulated to thwart IRS’ collection efforts. For example, one spouse

might retain sole ownership of the couple’s residence, the couple’s major

asset, while the spouse without assets takes responsibility for the taxes.

Thus, IRS would not be able to place a lien against the residence to force

collection action for any delinquent taxes.

• In community property states, IRS can levy one spouse’s income to satisfy

the premarital tax debts of the other spouse because of the joint

Page 2 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

ownership of property in those states. In contrast, IRS cannot levy the

income of one spouse to pay the premarital tax debts of the other spouse

in common law states because spouses do not have a legal entitlement to

each other’s property. Since IRS does not maintain data on how often it

levies community property to settle premarital tax debts, we could not

assess the potential impact on IRS of changing the law to treat everyone the

way it treats taxpayers in common law states.

• Treasury’s report parallels our report on identifying ways to improve the

administration of the current innocent spouse provisions. They include

revising publications to better educate and inform taxpayers on the

provisions, creating a new form for applying for relief, training IRS staff on

how to handle innocent spouse claims, and developing a process for

ensuring consistency in processing innocent spouse claims. Also, Treasury

recommended several statutory changes that would give more taxpayers

opportunities to qualify for innocent spouse relief, would allow the Tax

Court to review IRS denials of innocent spouse claims, and would suspend

collection actions against one spouse when the other is contesting a

proposed assessment in Tax Court. While we did not recommend any

statutory changes, we did point out in our report the inequities of not

allowing more taxpayers to be eligible for relief. Our report did not discuss

having the Tax Court review denied innocent spouse claims or suspending

collection actions on Tax Court cases.

I would like to discuss each of these points in more detail after providing

an overview of the current innocent spouse provisions and presenting

several examples of how IRS administers the provisions.

Innocent Spouse

Provisions

Under the joint and several liability standard, when a married couple files

a joint federal income tax return, each spouse becomes individually

responsible for paying the entire amount of the tax associated with that

return. As a result, one spouse can be held liable for tax deficiencies

assessed after a joint return was filed, even if the additional taxes were

solely attributable to the income of the other spouse. Married couples can

file separately and be held liable only for the taxes accruing from their

own income, but couples who file this way may face a higher total tax bill

than if they filed jointly.

An example of the potential liability resulting from joint filing would be if

IRS discovered that one spouse actually had an additional $5,000 in income

not reported on the joint return that the other spouse was not aware of. If

IRS cannot collect the additional taxes owed on the unreported income

Page 3 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

from the culpable spouse, it may seek to collect the taxes from the

“innocent spouse.” However, the innocent spouse may obtain relief from

the additional tax liability if certain conditions are met.

The current innocent spouse provisions only apply to taxes assessed after

the joint return was filed. The provisions do not apply to underpayments

of the taxes reported on the joint return because any underpayments are

expected to be known by both spouses signing the joint return. The

provisions allow relief from the joint and several liability standard when

• the innocent spouse has filed a joint return with the culpable spouse;

• the innocent spouse did not know and had no reason to know there was a

substantial tax understatement (knowledge test); and

• taking into account all the facts and circumstances, it is inequitable to hold

the spouse liable for the additional tax attributable to the substantial

understatement of the culpable spouse.

In addition, the spouse requesting relief must meet certain dollar

thresholds that vary depending on the cause of the additional assessment:

• A tax liability resulting from an omission of gross income must exceed

$500.

• A tax liability resulting from a deduction, credit, or basis that has no basis

in fact or law must exceed $500 and also be in excess of certain income

levels.3

 If the innocent spouse has remarried, the new spouse’s income is

included in this calculation whether or not they file a joint return.

The following case histories illustrate the types of situations that IRS and

taxpayers confront when applying these standards:

• A taxpayer learned of an assessment of over $3,000 against a 1985 joint

return when IRS levied her wages in 1992. The assessment was generated

primarily by her ex-husband’s disallowed business and moving expenses,

although he also had some unreported income. The taxpayer submitted

documentation demonstrating that the unreported income was generated

by her husband and received relief for about $200. According to an IRS

official, she could not substantiate her husband’s disallowed business

expenses and was held liable for the remainder of the tax.

• A taxpayer’s ex-husband, a wanted fugitive, had not paid the tax reported

for 2 tax years. The taxpayer remarried, and IRS placed liens against her

3

These income levels are (1) 10 percent of the innocent spouse’s adjusted gross income for their

preadjustment tax year if the taxpayer’s income is less than or equal to $20,000; or (2) 25 percent of the

innocent spouse’s income if the taxpayer’s income is greater than $20,000.

Page 4 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

new husband’s property. IRS denied innocent spouse relief. This was in

part because the liability was for taxes reported on the joint return rather

than taxes assessed after the return was filed; that is, there was an

underpayment. IRS did accept an Offer in Compromise for both years and

for a third year where the ex-husband had failed to report income.

• In 1995, a taxpayer wrote to IRS to protest taxes due on 3 joint returns that

were attributable to income derived from her ex-husband’s fraudulent

activities. In 1996, IRS informed the taxpayer she was not eligible for

innocent spouse relief for 2 tax years because these balances were for

taxes reported as due on the original returns but not paid when the returns

were filed. However, IRS staff informed the taxpayer they would consider

innocent spouse relief for 1 year if the taxpayer could demonstrate she

had no knowledge of the unreported income. She submitted third-party

statements that she did not live a lavish or enhanced lifestyle as well as

copies of police records on her ex-husband’s arrest and trial. IRS eventually

granted innocent spouse relief for that 1 year.

• A taxpayer learned of an assessment of about $1,200 on joint returns for 2

years when IRS seized her 1995 tax refund. The assessment was generated

by her ex-husband’s unreported income. The taxpayer argued that the

couple had maintained separate checking and savings accounts, and

therefore she did not know of the unreported income. Furthermore, the

divorce decree specified that her ex-husband would be responsible for

outstanding tax debts incurred during the marriage. IRS denied innocent

spouse relief for 1 year because the additional tax assessment for that year

was less than the $500 threshold. IRS denied innocent spouse relief for the

other year because the taxpayer did not meet the knowledge requirement.

Because the unreported income was more than 75 percent of the

ex-husband’s total income, IRS staff believed she should have been aware

of the income earned even though the spouses had separate accounts.

• A taxpayer was assessed over $3,000 on joint returns filed in 4 tax years

generated by her husband’s disallowed deductions for gambling losses.

She was denied innocent spouse relief for 1 year because the additional

tax assessment for that year was less than the $500 threshold. She was

denied innocent spouse relief for the other 3 years because the additional

tax assessment in each of those years was less than 25 percent of her

adjusted gross income.

Estimated Universe of

Potential Innocent

Spouses

Because IRS did not have data on the number of innocent spouse requests

filed, we developed an estimate of the potential universe of innocent

spouses by analyzing data relating to the 1.2 million joint returns which

were assessed additional taxes under IRS’ 1992 audit and underreporter

Page 5 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

programs. Of these 1.2 million returns, about 587,000 had additional tax

assessments exceeding $500, which is the minimum dollar threshold

required for innocent spouse relief.

However, our estimate of 587,000 couples represents the maximum

number of taxpayers potentially eligible for innocent spouse relief. This is

more than would probably actually qualify. For instance, some couples

were probably assessed additional taxes as a result of overstated

deductions, credits, or basis, which have other dollar thresholds in

addition to the $500 threshold. Further, some of the 587,000 couples may

not have qualified for innocent spouse protection because they both knew

there was a substantial tax understatement. This knowledge would have

made them ineligible for relief even if the tax deficiency was solely

attributable to the actions of one spouse.

Since divorced taxpayers seek innocent spouse relief most frequently, we

also estimated the number of taxpayers who could potentially be eligible

for relief and may have divorced during the 3 years since the 1992 joint

returns were filed. Using a 2-percent per year divorce rate, we estimated

that 35,000 divorced taxpayers had additional tax assessments of more

than $500.

Information Available

on Applying for

Innocent Spouse

Relief Was Limited

Although innocent spouse relief is clearly established in law and

regulation, we observed that little information about the criteria for

granting it or how to apply for it was available from IRS. The innocent

spouse relief provisions are described in several IRS publications, but these

publications do not provide any guidance on how to request relief.

Furthermore, these publications are developed to help taxpayers prepare

their returns, which is far in advance of the time that taxpayers might need

information on innocent spouse relief. Moreover, the publications most

directly related to the enforcement and collection procedures that apply

when taxpayers are billed for their spouses’ taxes are totally silent about

innocent spouse relief.

Because IRS lacked well-defined procedures for taxpayers to request

innocent spouse relief, the taxpayers involved in the innocent spouse

cases we reviewed resorted to existing avenues that were designed to

resolve other types of problems. In most cases, we found that either the

taxpayers or their representatives had (1) contacted Problem Resolution

Offices, which were established to assist taxpayers who cannot resolve

their problems through normal IRS channels; or (2) had requested relief

Page 6 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

through an Offer in Compromise, which is used in the cases of taxpayers

who cannot pay the full amount of the balance due and decide to offer a

lesser amount. The fact that taxpayers are commonly using these two

approaches to seek innocent spouse relief indicates to us that IRS does not

provide taxpayers with adequate guidance for seeking relief.

Some IRS staff are as confused as taxpayers about how to request innocent

spouse relief. The various IRS units we contacted took different

approaches to providing relief. For example, two district offices granted

relief using Offers in Compromise based on doubt as to liability, while staff

at one service center routinely denied such requests as inappropriate.

Modifying Tax Code

Provisions Could

Allow More Taxpayers

to Qualify for Relief

The current provisions may not ensure that taxpayers receive equitable

relief. For example, the dollar thresholds represent eligibility criteria for

relief based on income or the size of the liability. These criteria appear to

be more related to an ability to pay or degree of hardship than to the

innocence of the taxpayer. The logic behind the income thresholds is

particularly cloudy because the potential innocent spouse’s income is

based on the tax year ending before the notice of deficiency (which may

be several years after the tax year of the joint return) and must include the

income of any new spouse. Finally, the dollar thresholds prevent

taxpayers with smaller liabilities from obtaining relief. Since the minimum

understatement of tax in all cases must be more than $500, lower income

taxpayers could be precluded from obtaining relief. We estimated that if

the dollar thresholds were eliminated, the maximum number of couples

filing tax year 1992 returns potentially eligible for innocent spouse relief

would have been 1.2 million, which consist of all couples who were

assessed additional taxes under IRS’ audit and underreporter programs.

Also, under the current provisions, spouses can receive relief if

deductions, credits, or basis have absolutely no basis in fact or law, but

not if they are simply erroneous. The distinction between a deduction

having no basis in fact or law versus its just being erroneous is difficult to

comprehend and can lead to various interpretations by IRS and the courts.

This problem is compounded by the fact that IRS’ regulations governing

innocent spouse relief were issued in 1974 and have not been updated to

incorporate more recent changes to the provisions.

The “knowledge” factor is perhaps the most subjective element in the

current innocent spouse provisions. For someone to prove that they did

not know and had no reason to know of a financial transaction undertaken

Page 7 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

by his or her spouse would generally be difficult, if not impossible. IRS and

the courts consider circumstantial factors, such as education, involvement

in the family’s financial affairs, and lifestyle, in assessing this contention.

For example, one indicator that IRS uses to determine if spouses were

aware of the tax avoidance is whether they benefited by living a lifestyle

significantly better than could be supported by the reported income.

However, according to critics, determining whether a taxpayer’s lifestyle

was significantly better because of the tax avoidance is fairly subjective

and the courts have interpreted the criteria differently.

Potential Impact of

Replacing the Joint

and Several Liability

Standard With

Proportionate

Liability

One way to ensure that taxpayers are not held liable for their spouses’

taxes would be to replace the joint and several liability standard with a

proportionate liability standard. Under proportionate liability, taxpayers

would be held responsible only for the taxes generated by their own

individual incomes and assets or, for taxpayers living in community

property states, for the tax associated with one-half of the community

income. We identified three options for administering a proportionate

liability standard. The options are to (1) eliminate joint returns and require

all taxpayers to file separately, (2) retain joint returns but modify them so

that each spouse’s income and deductions are reported in separate

columns (this is called front-end proportionality), and (3) retain the

current joint return requirements but apply proportionate liability only in

cases where there are delinquent taxes or subsequent tax assessments

(this is called back-end proportionality).

We evaluated the potential effects of these options on IRS’ tax

administration processes and taxpayers’ burden. Table 1 shows the pros

and cons of the three options for taxpayers and IRS.

Page 8 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

Table 1: Pros and Cons of Different

Methods of Administering a

Proportionate Liability Standard Entity

Separate return

optiona

Modified joint

return optionb

Current joint return

optionc

Taxpayers

Pros

Cons

If divorced,

individual liability is

more clearly

established. 

Must prepare two

returns but receive

limited or no benefit

while married.

May have a higher

tax liability.

If divorced,

individual liability is

more clearly

established. 

Must allocate joint

income, deductions,

and credits but

receive limited or no

benefit while

married.

May have a higher

tax liability.

No additional

paperwork burden.

Must establish

individual liability if

additional taxes

assessed.

IRS

Pros

Cons

Individual liability

more clearly

established.

Increased costs for

processing up to

twice as many

returns for married

couples.

Increased difficulty

in matching income

reported on returns

to information

returns.

Increased collection

costs because IRS

would have to

collect from each

taxpayer.

Individual liability

more clearly

established.

Might increase costs

for keying additional

data into computer

systems.

Increased difficulty

in matching income

reported on returns

to information

returns.

Increased collection

costs because IRS

would have to

collect from each

taxpayer.

No additional

return-processing

costs.

Must establish

individual liability if

additional taxes

assessed.

Increased collection

costs because IRS

would have to

collect from each

taxpayer.

aEach spouse files separate return.

bIncome split out separately on joint return.

cProportionate income only for returns with unpaid taxes or subsequent tax assessments.

Source: GAO’s analysis of three proportionate liability options.

Page 9 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

As shown in the table, these options represent trade-offs between clearly

establishing each taxpayer’s liability on their tax returns and the amount

of paperwork and administrative burden created for taxpayers and IRS.

Binding IRS to

Divorce Decrees

Would Be Impractical

Divorcing couples may specify in their divorce decrees how future

liabilities resulting from their prior joint returns are to be handled, such as

one spouse is entirely liable, both spouses are equally liable, or some other

permutation. However, IRS is not bound by these divorce decrees because

it is not a party to the decree.

We found that a legislative change to bind IRS to divorce decrees appears

impractical for two major reasons. First, current federal law provides no

mechanism whereby IRS can be a party to divorce proceedings. Federal tax

matters are the exclusive jurisdiction of the federal courts. Divorce

matters, however, are generally handled by state courts. Federal courts

have traditionally refused to consider any legal action involving divorce.

Thus, providing a legal forum where IRS and the parties to a divorce could

resolve issues relating to both tax matters and divorce proceedings would

require a fundamental and extensive change in either federal tax law or

state domestic relations law.

Second, binding IRS to divorce decrees could require IRS to become

involved in every divorce settlement or trial. In 1994, about 1.2 million

divorce decrees were granted in the United States. To be a party to this

many legal proceedings nationwide each year would create a significant

administrative burden for IRS.

IRS officials also believe the number of appeals would increase because

divorce decrees can be lengthy and complex documents that are open to

more than one interpretation. Furthermore, IRS officials fear that divorce

decrees would be manipulated to thwart its collection efforts. For

example, one spouse might retain sole ownership of the couple’s

residence, the couple’s major asset, while the spouse without assets takes

responsibility for the taxes. Thus, IRS would not be able to place a lien

against the residence to force collection action for any delinquent taxes.

Page 10 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

IRS Follows State

Property Laws in

Collecting Premarital

Tax Debts

About 13 million, or 27 percent, of all taxpayers who filed joint returns in

1992 lived in community property states. Some of these taxpayers may

have been held financially responsible for tax liabilities incurred by their

spouses before their marriage, which they would not have been if they

lived in a common law state. This disparate treatment between taxpayers

residing in community property states versus those living in common law

states occurs because IRS, as with other creditors, follows state law in

classifying married couples’ rights in property.

Because the income, including wages, of taxpayers living in certain

community property states is considered community property, IRS can

place a levy on the wages or other separate income of either spouse to

satisfy an existing tax debt, even if that tax debt was incurred by the other

spouse before their marriage. In contrast, IRS cannot place a levy on the

separate income of one spouse to pay the taxes due from the other spouse

in a common law state. Once the income of either spouse is placed in a

joint account it would be subject to IRS seizure in both community

property and common law states.

According to IRS officials, the agency does not have specific procedures for

placing levies on a spouse’s income for premarital taxes incurred by the

other spouse. Officials told us that under IRS’ collection procedures, levy

action is generally to be taken against the individually held income. For

example, wages of the taxpayer who incurred the tax debt or any jointly

held income, such as an interest-bearing account, may be levied but not

the separate income of the other spouse.

Treasury’s Report

Parallels Our

Administrative

Recommendations

Treasury’s February 1998 report indicates that IRS is currently undertaking

a number of actions to improve the administration of the current innocent

spouse provisions. Several of these actions were recommended in our

March 1997 report and will include:

• issuing a new form to assist taxpayers in preparing claims for innocent

spouse relief,

• processing the new form in one central location to ensure greater

consistency in evaluating the claims,

• developing training courses on the innocent spouse provisions for

collections and examination personnel, and

• revising tax form instructions and other publications to make innocent

spouses more aware of the relief available to them.

Page 11 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

Other actions Treasury reports IRS to be undertaking include:

• reviewing current training materials to ensure that they stress the

responsibilities of IRS employees to identify situations where innocent

spouse provisions might apply, even where the taxpayer does not know of

the provisions,

• making telephone assistors, specially trained in innocent spouse

provisions, available to answer questions from taxpayers received through

IRS’ toll free telephone system, and

• conducting outreach to community organizations that serve abused and

battered spouses to identify those who might qualify for innocent spouse

relief.

We believe these administrative actions if implemented effectively should

make more taxpayers aware of their rights under the innocent spouse

provisions and provide for more consistent application of the provisions

by IRS employees.

Treasury’s report made three statutory recommendations. One dealt with

making it easier to qualify for innocent spouse relief by changing statutory

standards to help additional taxpayers, including those with smaller tax

liabilities who are presently ineligible for relief. These changes would

include lowering or eliminating the income thresholds, allowing

underpayment as well as understatement of taxes to be covered by the

provisions, and eliminating the “no basis in fact or law” requirement for

erroneously claimed deduction, credit, or basis, which would put these

items on the same footing as omissions from income. While we did not

recommend any of these changes, our report did point out similar

problems with these provisions.

Treasury recommended two other statutory changes that would help

taxpayers. One would allow the Tax Court to review IRS denials of

innocent spouse claims, and the other would suspend collection actions

against one spouse when the other is contesting a proposed assessment in

Tax Court.

Summary In summary, Madame Chairman, we found that the existing innocent

spouse provisions are complex, difficult to understand, and pose a serious

challenge for IRS and taxpayers. In addition, they result in the inequitable

treatment of taxpayers. There are both administrative and statutory

Page 12 GAO/T-GGD-98-72
Statement 

Innocent Spouse: Alternatives for Improving

Innocent Spouse Relief

options for improving the innocent spouse provisions. On the

administrative level, we have made recommendations, which are echoed

in the Treasury report. If the recommendations are properly implemented,

they would put both taxpayers and IRS employees in a better position to

understand and be in compliance with the provisions. We believe these

improvements should be undertaken regardless of whether there are

changes made to the statute.

On the statutory level, repeal of the qualifying thresholds and inclusion of

erroneous deductions and underpayment as well as understatement of tax

could make the provisions less complex and more equitable.

Finally, there is the issue of replacing the joint and several liability

standard with a proportionate liability standard. While there are several

alternatives for doing this, each represents trade-offs between establishing

individual taxpayer liability on a tax return and the amount of paperwork

and administrative burden created for taxpayers and IRS.

This concludes our prepared statement. We would be pleased to answer

any questions.

(268846) Page 13 GAO/T-GGD-98-72
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100