-15-
their marriage. In addition, Mr. Edmondson signed an indemnity
promising to pay all tax liabilities resulting from the filing of
their joint tax returns. The effect of such a promise has been
considered by this Court on several occasions with regard to
granting innocent spouse relief. See, e.g., Foley v. Commissioner,
T.C. Memo. 1995-16; Buchine v. Commissioner, T.C. Memo. 1992-36,
affd. 20 F.3d 173 (5th Cir. 1994); Henninger v. Commissioner, T.C.
Memo. 1991-574.
Considering all the facts and circumstance involved herein,
we conclude that it would not be inequitable to hold petitioner
liable for the determined understatement.
In sum, we hold that petitioner is not entitled to innocent
spouse relief. She has failed to prove: That the substantial
understatement was attributable to Mr. Edmondson's grossly erroneous
items; that she did not know or have reason to know of the
substantial understatement; or that it would be inequitable to hold
her liable for the deficiency as determined in the settlement
stipulation.
Issue 2. Section 1034 Deferral
A taxpayer must include in gross income gains derived from
dealings in property. Sec. 61(a)(3). A taxpayer is generally
required to recognize the entire amount of gain or loss realized on
the sale or exchange of property. With respect to gain realized on
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