Any fraction determined under paragraph (4) shall be
rounded to the nearest percentage point.
‘‘(d) TREATMENT OF CREDITS.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), each spouse’s share of credits allowed to
both spouses shall be determined by multiplying the
aggregate amount of the credits by the fraction de-
termined under subsection (c)(4).
‘‘(2) EARNED INCOME CREDIT.—The earned in-
come credit under section 32 shall be determined as
if each spouse were a separate taxpayer, except
that—
‘‘(A) the earned income and the modified
adjusted gross income of each spouse shall be
determined under the rules of subsections (b),
(c), and (e), and
‘‘(B) qualifying children shall be allocated
between spouses proportionate to the earned in-
come of each spouse (rounded to the nearest
whole number).
‘‘(e) SPECIAL RULES REGARDING INCOME LIMITA-
TIONS.—
‘‘(1) EXCLUSIONS AND DEDUCTIONS.—For pur-
poses of making a determination under subsection
(b) or (c), any eligibility limitation with respect to
each spouse shall be determined by taking into ac-
count the limitation applicable to a single individual.
‘‘(2) CREDITS.—For purposes of making a de-
termination under subsection (d)(1), in no event
shall an eligibility limitation for any credit allowable
to both spouses be less than twice such limitation
applicable to a single individual.
‘‘(f) SPECIAL RULES FOR ALTERNATIVE MINIMUM
TAX.—If a husband and wife elect the application of this
section—
‘‘(1) the tax imposed by section 55 shall be
computed separately for each spouse, and
‘‘(2) for purposes of applying section 55—
‘‘(A) the rules under this section for allo-
cating items of income, deduction, and credit
shall apply, and
‘‘(B) the exemption amount for each
spouse shall be the amount determined under
section 55(d)(1)(B).
‘‘(g) TREATMENT AS JOINT RETURN.—Except as
otherwise provided in this section or in the regulations
prescribed hereunder, for purposes of this title (other than
sections 1 and 63(c)) a combined return under this section
shall be treated as a joint return.
‘‘(h) PHASE-IN OF BENEFIT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning before January 1, 2004, the tax im-
posed by section 1 or 55 shall in no event be less
than the sum of—
‘‘(A) the tax determined after the applica-
tion of this section, plus
‘‘(B) the applicable percentage of the ex-
cess of—
‘‘(i) the tax determined without the
application of this section, over
‘‘(ii) the amount determined under
subparagraph (A).
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage shall be
determined in accordance with the following table:
The applicable
‘‘For taxable years beginning in:
percentage is:
2002 .........................................................................................
2003 .........................................................................................
10.
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out this section.’’.
(b) UNMARRIED
RATE
MADE
APPLICABLE.—So
much of subsection (c) of section 1 of the Internal Rev-
enue Code of 1986 as precedes the table is amended to
read as follows:
‘‘(c) SEPARATE OR UNMARRIED RETURN RATE.—
There is hereby imposed on the taxable income of every
individual (other than a married individual (as defined in
section 7703) filing a return which is not a combined re-
turn under section 6013A, a surviving spouse as defined
in section 2(a), or a head of household as defined in sec-
tion 2(b)) a tax determined in accordance with the fol-
lowing table:’’.
(c) PENALTY FOR SUBSTANTIAL UNDERSTATEMENT
OF INCOME FROM PROPERTY.—Section 6662 of the Inter-
nal Revenue Code of 1986 (relating to imposition of accu-
racy-related penalty) is amended—
(1) by adding at the end of subsection (b) the
following:
‘‘(6) Any substantial understatement of income
from property under section 6013A.’’, and
(2) by adding at the end the following new sub-
section:
‘‘(i) SUBSTANTIAL UNDERSTATEMENT OF INCOME
FROM PROPERTY UNDER SECTION 6013A.—For pur-
poses of this section, there is a substantial understatement
of income from property under section 6013A if—
‘‘(1) the spouses electing the treatment of such
section for any taxable year transfer property from
1 spouse to the other spouse in such year,
‘‘(2) such transfer results in reduced tax liabil-
ity under such section, and
‘‘(3) the significant purpose of such transfer is
the avoidance or evasion of Federal income tax.’’.
(d) PROTECTION OF SOCIAL SECURITY AND MEDI-
CARE TRUST FUNDS.—
(1) IN GENERAL.—Nothing in this section shall
be construed to alter or amend the Social Security
Act (or any regulation promulgated under that Act).
(2) TRANSFERS.—
(A) ESTIMATE OF SECRETARY.—The Sec-
retary of the Treasury shall annually estimate
the impact that the enactment of this section
has on the income and balances of the trust
funds established under sections 201 and 1817
of the Social Security Act (42 U.S.C. 401 and
1395i).
(B) TRANSFER OF FUNDS.—If, under sub-
paragraph (A), the Secretary of the Treasury
estimates that the enactment of this section has
a negative impact on the income and balances
of such trust funds, the Secretary shall trans-
fer, not less frequently than quarterly, from the
general revenues of the Federal Government an
amount sufficient so as to ensure that the in-
come and balances of such trust funds are not
reduced as a result of the enactment of this sec-
tion.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart B of part II of subchapter A of chapter 61
of the Internal Revenue Code of 1986 is amended by in-
serting after the item relating to section 6013 the fol-
lowing:
‘‘Sec. 6013A. Combined return with separate rates.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
Æ