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6. Whether Petitioner May Deduct Amounts He Paid With His
Separate Funds If Community Funds Were Available
Respondent contends that petitioner may not deduct amounts
that he paid for his former spouse’s share of community business
expenses with his separate funds because there were community
funds available in a separate savings account. We disagree.
The direct tracing method does not require all community
funds to be exhausted first. Under the direct tracing method,
a party can prove that he or she used his or her separate funds
even if other community funds are available. Our acceptance of
respondent’s contention would, in effect, eliminate the direct
tracing method and require the parties to use the family
expenditure method. Respondent stipulated that either of the two
methods may be used under California law to trace whether a party
used separate funds to pay particular expenditures. Thus,
respondent’s position is contrary to respondent’s stipulation
that allows parties to use the direct tracing and family
expenditure methods to trace funds.
Respondent provides no persuasive authority for this
contention. Respondent contends that Bozek v. Commissioner,
T.C. Memo. 1986-37; Porter v. Commissioner, T.C. Memo. 1979-104;
Kaonis v. Commissioner, T.C. Memo. 1978-184, affd. without
published opinion 639 F.2d 788 (9th Cir. 1981); and Powell v.
Commissioner, T.C. Memo. 1967-32, hold that spouses filing
separate income tax returns may deduct only one-half of the
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