Marianne Hopkins - Page 20

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          105-599, supra at 252-253, 1998-3 C.B. at 1006-1007.  The                   
          following examples are provided in the conference report:                   
                    For example, a married couple files a joint return                
               with wage income of $100,000 allocable to the wife and                 
               $30,000 of self employment income allocable to the                     
               husband. On examination, a $20,000 deduction allocated                 
               to the husband is disallowed, resulting in a deficiency                
               of $5,600. Under the provision, the liability is                       
               allocated in proportion to the items giving rise to the                
               deficiency. Since the only item giving rise to the                     
               deficiency is allocable to the husband, and because he                 
               reported sufficient income to offset the item of                       
               deduction, the entire deficiency is allocated to the                   
               husband and the wife has no liability with regard to                   
               the deficiency, regardless of the ability of the IRS to                
               collect the deficiency from the husband.                               
                    If the joint return had shown only $15,000                        
               (instead of $30,000) of self employment income for the                 
               husband, the income offset limitation rule discussed                   
               above would apply. In this case, the disallowed $20,000                
               deduction entirely offsets the $15,000 of income of the                
               husband, and $5,000 remains. This remaining $5,000 of                  
               the disallowed deduction offsets income of the wife.                   
               The liability for the deficiency is therefore divided                  
               in proportion to the amount of income offset for each                  
               spouse. In this example, the husband is liable for 3/4                 
               of the deficiency ($4,200), and the wife is liable for                 
               the remaining 1/4 ($1,400).  [H. Conf. Rept. 105-599,                  
               supra at 252-253, 1998-3 C.B. at 1006-1007.]                           
          The allocation in the above example is made without reference to            
          whether the husband, the wife, or both elect relief under section           

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