Anna Ruth French - Page 2

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               (1)  Whether petitioner qualifies for innocent spouse relief           
          under section 6013(e).  We hold that she does not.                          
               (2)  Whether petitioner is liable for the addition to tax              
          for a substantial understatement of income tax under section 6661           
          for the taxable year at issue.  We hold that she is.                        
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          The stipulation of facts and the attached exhibits are                      
          incorporated herein.  Petitioner resided in Frederica, Delaware,            
          at the time the petition was filed in this case.                            
               For each of the 6 taxable years ending in 1990, petitioner             
          and her husband (Mr. French) filed joint Federal income tax                 
          returns.  The return for taxable year 1988 was filed in October             
          1989 and contained a net operating loss (NOL) of $618,987.  The             
          NOL was derived from several entrepreneurial undertakings by Mr.            
          French.  On November 10, 1989, petitioner signed a Form 1045,               
          Application for Tentative Refund, requesting that $226,855 of the           
          NOL from 1988 be carried back to taxable year 1986.                         
          Concurrently, petitioner and Mr. French filed related Forms 1040X           
          with respect to taxable years 1986 and 1988.  On or about January           
          20, 1990, petitioner and Mr. French received a refund check in              
          the approximate amount of $226,000 for taxable year 1986.                   
               Following an audit, respondent disallowed part of the 1988             
          NOL which was carried back to 1986.  Respondent now seeks to                
          recapture the corresponding portion of the refund.                          

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