Page:United States Statutes at Large Volume 98 Part 1.djvu/850

 98 STAT. 802

PUBLIC LAW 98-369—JULY 18, 1984 then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such substantial understatement. "(2) GROSSLY ERRONEOUS ITEMS.—For purposes of this subsection, the term 'grossly erroneous items' means, with respect to any spouse— "(A) any item of gross income attributable to such spouse which is omitted from gross income, and "(B) any claim of a deduction, credit, or basis by such spouse in an amount for which there is no basis in fact or law. "(3) SUBSTANTIAL UNDERSTATEMENT.—For purposes of this subsection, the term 'substantial understatement' means any understatement (as defined in section 6661(b)(2)(A)) which exceeds $500. "(4) UNDERSTATEMENT MUST EXCEED SPECIFIED PERCENTAGE OF SPOUSE'S INCOME.— "(A) ADJUSTED GROSS INCOME OF $20,000 OR LESS.—If the

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spouse's adjusted gross income for the preadjustment year is $20,000 or less, this subsection shall apply only if the liability described in paragraph (1) is greater than 10 percent of such adjusted gross income. "(B) ADJUSTED GROSS INCOME OF. MORE THAN $20,000.—If the spouse's adjusted gross income for the preadjustment year is more than $20,000, subparagraph (A) shall be applied by substituting '25 percent for '10 percent'. "(C) PREADJUSTMENT YEAR.—For purposes of this paragraph, the term 'preadjustment year means the most recent taxable year of the spouse ending before the date the deficiency notice is mailed. "(D) COMPUTATION OF SPOUSE'S ADJUSTED GROSS INCOME.—

If the spouse is married to another spouse at the close of the preadjustment year, the spouse's adjusted gross income shall include the income of the new spouse (whether or not they file a joint return). "(E) EXCEPTION FOR OMISSIONS FROM GROSS INCOME.—This

paragraph shall not apply to any liability attributable to the omission of an item from gross income. "(5)

SPECIAL RULE FOR COMMUNITY PROPERTY INCOME.—For

purposes of this subsection, the determination of the spouse to whom items of gross income (other than gross income from property) ai^e attributable shall be made without regard to community property laws." (b) TREATMENT OF COMMUNITY INCOME.—

26 USC 66.

(1) IN GENERAL.—Section 66 (relating to treatment of community income where spouses live apart) is amended by redesignating subsection (b) as subsection (d) and by inserting after subsection (a) the following new subsections: "(b) SECRETARY MAY DISREGARD COMMUNITY PROPERTY LAWS WHERE SPOUSE NOT NOTIFIED OF COMMUNITY INCOME.— The Secre-

tary may disallow the benefits of any community property law to any taxpayer with respect to any income if such taxpayer acted as if solely entitled to such income and failed to notify the taxpayer's spouse before the due date (including extensions) for filing the return for the taxable year in which the income was derived of the nature and amount of such income.

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