Druker v. C.I.R.

• Decision Date: 22 December 1982
• Docket Number: 115 and 116,Nos. 108,D,s. 108
• Citation: 697 F.2d 46
• Parties: 83-1 USTC P 9116 James O. DRUKER and Joan S. Druker, Petitioners-Appellants-Cross-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee-Cross-Appellant. ockets 82-4063, 82-4065 and 82-4073.
• Court: U.S. Court of Appeals — Second Circuit

Page 46

697 F.2d 46

83-1 USTC P 9116

James O. DRUKER and Joan S. DrukerPetitioners-Appellants-Cross-Appellees, v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee-Cross-Appellant.

Nos. 108, 115 and 116, Dockets 82-4063, 82-4065 and 82-4073.

United States Court of Appeals Second Circuit.

Argued Sept. 16, 1982.

Decided Dec. 22, 1982.

James O. Druker, Mineola, N.Y., pro se.

Paula Schwartz Frome, Mineola, N.Y., for petitionerJoan S. Druker.

William French Smith, Atty. Gen., U.S. Dept. of Justice, Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Gary R. Allen, Elaine F. Ferris, Attys., Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellee-cross-appellant C.I.R.

Before FEINBERG, Chief Judge, and FRIENDLY and KAUFMAN, Circuit Judges.

FRIENDLY, Circuit Judge:

We have here an appeal by taxpayers and a cross-appeal by the Commissioner from a judgment after trial before Chief Judge Tannenwald of the Tax Court, 77 T.C. 867(1981).

I.

The principal issue on the taxpayers' appeal is the alleged unconstitutionality of the so-called "marriage penalty".The issue relates to the 1975 and 1976 income tax returns of James O. Druker and his wife Joan.During the tax years in question James was employed as a lawyer, first by the United States Attorney for the Eastern District of New York and later by the District Attorney of Nassau County, New York, and Joan was employed as a computer programmer.For each of the two years they filed separate income tax returns, checking the status box entitled "married filing separately".In computing their respective tax liabilities, however, they applied the rates in I.R.C. Sec. 1(c) for "Unmarried individuals" rather than the higher rates prescribed by Sec. 1(d) for "Married individuals filing separate returns".Prior to undertaking this course of action, James consulted with the United States Attorney for the Eastern District and with members of the Intelligence Division of the IRS, explaining that he and his wife wanted to challenge the constitutionality of the "marriage penalty" without incurring liability for fraud or willfulness.Following these conversations they filed their returns as described, attaching to each return a letter explaining that, although married, they were applying the tax tables for single persons because they believed that the "income tax structure unfairly discriminates against working married couples" in violation of the equal protection clause of the fourteenth amendment.The Tax Court rejected this constitutional challenge, sustaining the Commissioner's determination that the Drukers were subject to tax at the rates provided in Sec. 1(d) for married persons filing separately.

Determination of the proper method for federal taxation of the incomes of married and single persons has had a long and stormy history.See generally, Bittker, Federal Income Taxation and the Family, 27 Stan.L.Rev. 1389, 1399-1416(1975).From the beginning of the income tax in 1913 until 1948 each individual was taxed on his or her own income regardless of marital status.Thus, as a result of the progressive nature of the tax, two married couples with the same aggregate income would often have very different tax liabilities--larger if most of the income belonged to one spouse, smaller as their incomes tended toward equality.The decision in Poe v. Seaborn, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239(1930), that a wife was taxable on one half of community income even if this was earned solely by the husband, introduced a further element of geographical inequality, since it gave married couples in community property states a large tax advantage over similarly situated married couples with the same aggregate income in common law states.

After Poe the tax status of a married couple in a community property state differed from that of a married couple in a common law state in two significant respects.First, each community property spouse paid the same tax as an unmarried person with one-half the aggregate community income, whereas each common law spouse paid the same tax as an unmarried person with the same individual income.Consequently, marriage usually reduced a couple's tax burden if they resided in a community property state but was a neutral tax event for couples in common law states.Second, in community property states all married couples with the same aggregate income paid the same tax, whereas in common law states a married couple's tax liability depended on the amount of income each spouse earned.SeeBittker, supra, 27 Stan.L.Rev.at 1408.

The decision in Poe touched off something of a stampede among common law states to introduce community property regimes and thereby qualify their residents for the privilege of income splitting.The Supreme Court's subsequent decision in Commissioner v. Harmon, 323 U.S. 44, 65 S.Ct. 103, 89 L.Ed. 60(1944), that the income-splitting privileges did not extend to couples in states whose community property systems were elective, slowed but did not halt this movement.The result was considerable confusion and much upsetting of expectations founded on long experience under the common law.Congress responded in 1948 by extending the benefits of "income splitting" to residents of common law as well as community property states.Revenue Act of 1948, ch. 168,62 Stat. 110.Pursuant to this Act, every married couple was permitted to file a joint return and pay twice the tax that a single individual would pay on one-half of their total income.This in effect taxed a married couple as if they were two single individuals each of whom earned half of the couple's combined income.The Act not only reduced the tax burden on married couples in common law states; it also ensured that all married couples with the same aggregate income paid the same tax regardless of the state in which they lived ("geographical uniformity") and regardless of the relative income contribution of each spouse ("horizontal equity").

While the 1948 Act was good news for married couples, it placed singles at a serious disadvantage.The tax liability of a single person was now sometimes as much as 41% greater than that of a married couple with the same income.S.Rep. No. 552 91st Cong., 1st Sess. 260(1969), U.S.CodeCong. & Admin.News 1969, p. 1645.Although constitutional challenges to the "singles' penalty" were uniformly rejected, see, e.g., Kellems v. Commissioner, 58 T.C. 556(1972), aff'd per curiam, 474 F.2d 1399(2 Cir.), cert. denied, 414 U.S. 831, 94 S.Ct. 63, 38 L.Ed.2d 66(1973);Faraco v. Commissioner, 261 F.2d 387(4 Cir.1958), cert. denied, 359 U.S. 925, 79 S.Ct. 606, 3 L.Ed.2d 627(1959), the single taxpayer obtained some relief from Congress.The Tax Reform Act of 1969, Pub.L. No. 91-172,83 Stat. 487(1969), increased the number of tax schedules from two to four: Sec. 1(a) for marrieds filing jointly;Sec. 1(b) for unmarried heads of households;Sec. 1(c) for unmarried individuals; and Sec. 1(d) for married individuals filing separately.¹The schedules were set so that a single person's tax liability under Sec. 1(c) would never be more than 120% that of a married couple with the same income filing jointly under Sec. 1(a).SeeS.Rep. No. 552, supra, at 260-62.

The 1969 reform spawned a new class of aggrieved taxpayers--the two wage-earner married couple whose combined tax burden, whether they chose to file jointly under Sec. 1(a) or separately under Sec. 1(d), was now greater than it would have been if they had remained single and filed under Sec. 1(c).It is this last phenomenon which has been characterized, in somewhat loaded fashion, as the "marriage penalty" or "marriage tax".²Here, again, while constitutional attack has been unavailing, seeJohnson v. United States, 422 F.Supp. 958(N.D.Ind.1976), aff'd per curiam sub nom. Barter v. United States, 550 F.2d 1239(7 Cir.1977), cert. denied, 434 U.S. 1012, 98 S.Ct. 725, 54 L.Ed.2d 755(1978);Mapes v. United States, 576 F.2d 896(Ct.Cl.), cert. denied, 439 U.S. 1046, 99 S.Ct. 722, 58 L.Ed.2d 705(1978), as well as the decision here under review, Congress has acted to provide relief.The Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, Sec. 103,95 Stat. 172, 187, allows two-earner married couples a deduction from gross income, within specified limits, equal to 10% of the earnings of the lesser-earning spouse.

Subsequent to the decisions in Johnson and Mapes, the Supreme Court made explicit in Zablocki v. Redhail, 434 U.S. 374, 98 S.Ct. 673, 54 L.Ed.2d 618(1978), what had been implicit in earlier decisions, that the right to marry is "fundamental".The Court, however, citing Califano v. Jobst, 434 U.S. 47, 98 S.Ct. 95, 54 L.Ed.2d 228(1977), took care to explain that it did "not mean to suggest that every state regulation which relates in any way to the incidents of or prerequisites for marriage must be subjected to rigorous scrutiny.To the contrary, reasonable regulations that do not significantly interfere with decisions to enter into the marital relationship may be legitimately imposed."434 U.S. at 386, 98 S.Ct. at 681.Whereas differences in race, religion, and political affiliation are almost always irrelevant for legislative purposes, "a distinction between married persons and unmarried persons is of a different character".Jobst, supra, 434 U.S. at 53, 98 S.Ct. at 99."Both tradition and common experience support the conclusion that marriage is an event which normally marks an important change in economic status."Id.

We do not doubt that the "marriage penalty" has some adverse effect on marriage; indeed, James Druker stated at argument that, having failed thus far in the courts, he and his wife had solved their tax problem by divorcing but continuing to live together.The adverse effect of the "marriage penalty", however, like the effect of the termination of social security benefits in Jobst, is merely "indirect"; while it may to some extent weight the...