Marriage in the Tax Code, Part 8: 1920s Court Battles

wedding-rings-150300_1280This post is part of a larger research project I’m conducting regarding the history of marriage in the U.S. tax code. As I finish sections, I will post them here. This is a long-term project, so I can’t guarantee when the next segment will appear.


In 1927 the U.S. Attorney General issued a new ruling relating to tax treatment of married couples in community property states.

In that opinion, the Attorney General said all community property states have different laws, so he was withdrawing his earlier opinion that said community property law applied in all community property states except California.

Instead, the Attorney General said the issue would be decided in a series of test cases – one from each state (including California again) – that would go before the U.S. Supreme Court.

Professor Pat Cain picks up the story from there:

In August of 1928, spouses from four community property states, Arizona, Louisiana, Texas, and Washington, filed test cases in federal district court.  In every case, the spouses had reported community income by allocating half to the husband and half to the wife.  In every case, the Internal Revenue Service refused the returns and instead assessed a tax against the husband, allocating 100% of the community income to him. The husbands in each case paid the tax and sued the local Collector of Internal Revenue in federal district court, claiming a refund in the amount of the additionally assessed tax. Ultimately these cases were consolidated and heard by the Supreme Court. In the lead case, taxpayer/husband Seaborn sued Burns Poe, the Collector of Internal Revenue for the District of Washington.

Source: Professor Cain’s research paper “Taxing Families Fairly,” available here.

Poe v. Seaborn, which was decided in 1930, would become a landmark case in taxation of community property. Indeed it is still referenced today in issues relating to taxation in community property states – including a key IRS ruling in 2010 that affected same-sex married couples and registered domestic partners in community property states.

The Supreme Court sided with the taxpayers in Poe v. Seaborn, and also sided with taxpayers in the other companion cases, including California. The result was, income splitting between spouses in all community property states was allowed.

While there were protests from the government and from married couples in common law states, the wheels of governmental change move slowly. It would take another 18 years after Poe v. Seaborn before filing statuses were created and equality would be achieved between married couples in common law and community property states.

Marriage in the Tax Code, Part 7: 1920s Court Battles

wedding-rings-150300_1280The IRS issued a ruling on community property laws in 1920, and then modified its stance several times throughout the 1920s.

The IRS originally said only spouses in Texas and Washington could apply community property laws, and then only on non-wage income (dividends, interest, etc.).

The U.S. Attorney General then jumped in and concluded that community property laws applied to all income in every community property state – except California. (For more information, see this research paper by Professor Pat Cain.)

A couple from California named Robbins challenged the Attorney General’s ruling. The couple had, in 1918, filed separate returns using community property law, even though Mrs. Robbins had no income herself.

The couple was victorious in Federal District Court in 1925. But the government appealed to the U.S. Supreme Court, and the Supreme Court ruled against the couple and in favor of the government in 1926.

The Supreme Court ruling was based on an interpretation of California community property law as giving the husband complete control over all community income. Therefore, the husband should report – and pay tax on – all community income, even income earned by the wife.

The Robbins ruling caused the Treasury Department to revisit its stance on community property rules. Now they proposed that community property rules do not apply in any community property state and that husbands should be taxed 100% on all income, even if the wife had her own separate earnings.

Taxpayers and elected officials in community property states protested. The Attorney General responded by holding public hearings, which ultimately ended in new guidance being issued — culminating with another Supreme Court ruling.

More on that in Part 8.

Marriage in the Tax Code, Part 6: Community Property Laws

wedding-rings-150300_1280Most states in the United States follow “common law,” but there are nine states that use “community property” law: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

For tax purposes, community property law treats many items of income of married couples as belonging half-and-half to each spouse. When spouses file separate tax returns, each spouse reports half of their own income and half of their spouse’s income.

(The specifics of what income is split varies from state to state; for example, interest and dividends are sometimes reported separately rather than split 50/50. IRS Publication 555 is an excellent resource for the current community property rules.)

The tax law changes between 1917 and 1919 created a highly progressive tax system, with progression that kicked in at lower income levels. This opened the door to higher-income couples in community property states to shift income and lower their tax burden as compared to couples in common law states.


In 1920, John has taxable income of $10,000 (the equivalent of about $115,000 today). Jane does not work outside the home.

In a common-law state, they would file a joint tax return showing $10,000 of taxable income. The tax on $10,000 is $750.

In a community property state, John and Jane could file separate tax returns showing $5,000 of taxable income on each return. The tax on $5,000 is $240.

John and Jane would owe $240 of tax each, or $480 total.

The tax savings for this couple in a community property state is $270 ($3,100 in today’s dollars).

Naturally, both the IRS and people in common-law states had a problem with this. The end result would be the creation of the filing statuses and multiple tax brackets we have today. But the wheels of government change move slowly, and it would take nearly 30 years for this to happen.


Marriage in the Tax Code, Part 5: Examples of Taxes in 1920

wedding-rings-150300_1280This post is part of a long-term project I’ve been working on regarding the history of marriage in the tax code.

As I finish sections of the research paper I’m working on, I’ll post them here. This is a big project, one that will likely take years, literally, to finish, so I can’t guarantee when the next post on this topic will appear.


At the end of Part 4 of this series, I mentioned that I would give some examples for why most married couples continued to file combined tax returns even with the major rate increases of 1917.

As detailed in Part 4, the workforce in those days was predominantly male. Married women typically didn’t work outside the home and so they didn’t have income of their own to report. These couples, by default, filed “joint” or combined tax returns.

Additionally, there were no filing statuses in those days, and just one tax bracket. In cases where both couples had income, it made sense to just file a combined tax return because there was no savings involved with filing separately.

Example 1:

In 1920, John has gross income of $5,000; Jane has gross income of $1,000. Subtracting out the $2,000 exemption amount leaves them with 4,000 of taxable income, which puts them in the 4% range of the tax bracket. They would still be in the 4% range if they filed separate returns. There is no benefit to filing separate returns, so for the sake of convenience they would likely file a combined return.

Note that $5,000 in 1920 is the equivalent of about $57,000 today; $$1,000 is the equivalent of about $10,000 today.

Example 2:

In 1920, John has gross income of $10,000; Jane has gross income of $2,000. If they file a joint return, their taxable income is $10,000. The tax on $10,000 is $750.

Or, they could file separate returns. John would likely claim the full $2,000 exemption amount himself, knocking his taxable income down to $8,000. The tax on $8,000 is $530. Jane’s taxable income would be $2,000, which creates a tax of $80. The total tax owed filing separately is thus $610 ($530 + $80), a savings of $140.

John and Jane would most likely file separate returns.

Note that $10,000 is the equivalent of about $114,,000 today, and $2,000 is the equivalent of about $23,000 today.

As these examples illustrate, filing a separate return was only advantageous if both spouses had income and their combined taxable income pushed them enough above the surtax level to make it worthwhile to file separately.

The tax changes made between 1917 and 1919 did not affect the way most married couples filed tax returns at the time, but the changes planted the seeds for the current system of filing statuses that we still use today. All because some high-income taxpayers discovered that they could have large tax savings by filing separate returns – even if only one spouse had income.

Those couples were fortunate to live in a “community property” state. And that is where the next part of our filing status story will continue.

Marriage in the Tax Code, Part 4: Joint Returns Still the Norm in 1917

wedding-rings-150300_1280This post is part of a long-term project I’ve been working on regarding the history of marriage in the tax code.

As I finish sections of the research paper I’m working on, I’ll post them here. This is a big project, one that will likely take years, literally, to finish, so I can’t guarantee when the next post on this topic will appear.


As detailed in Part 3, the tax code changed in 1917 and drew millions more people into the tax system. But one thing that didn’t change for most married couples was the way they filed tax returns.

There were still no filing statuses and there was still just one tax bracket that applied to everyone. Married couples received no preferential treatment.

But just as in 1913, most married couples continued to file joint tax returns. Indeed, the percentage of joint returns filed in 1920 was actually slightly higher that the percentage of joint returns filed in 1913 (98.0% in 1920; 97.6% in 1913). By 1923, the percentage of joint returns had decreased (to 96.4%) but joint returns were still the overwhelming choice for most married couples. (Source: a memo by a “Ms. Coyle” at the IRS in 1941:

There are two explanations why joint returns were so common even after the changes from 1917-1919:

  1. There were fewer women in the workplace and thus more one-income married couples. According to the U.S. Department of Labor, women made up just 21% of the labor force in 1920, compared to 47% in 2010. By default, a tax return filed by a one-income married person was counted as a “joint” return.
  2. Even though the tax rates after 1917 were different from what the tax rates were in 1913, many taxpayers still fell within the first range of the tax bracket and thus out of the higher “surtax” range. The 4% tax bracket applied to the first $4,000 of taxable income. There was a $2,000 exemption amount for married couples, and an additional $200 exemption for each dependent. So a family of four could have combined gross income of $6,400 (the equivalent of about $73,000 today) and still fall in the 4% range.

I’ll give some examples in Part 5.