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upon matters agreed by the parties or ruled upon by the Court.
Home Group, Inc. v. Commissioner, 91 T.C. 265, 269 (1988), affd.
875 F.2d 377 (2d Cir. 1989); Whitham v. Commissioner, a
Memorandum Opinion of this Court dated Jan. 30, 1953.
The starting point for each party's computation of the 1983
tax liability here is the $178,782 taxable income per the notice
of deficiency. Petitioner then proceeds to deduct the $900,525
loss attributable to the grossly erroneous item, which results in
"negative" taxable income of $729,5904 after considering the
income per the notice of deficiency. Petitioner contends that
the negative taxable income obviates the possibility of the
capital loss item causing any taxable income.
Respondent computes her 1983 proposed tax deficiency for
petitioner in accord with the following pertinent instructions in
subsection 45(11)(20) (Guidelines for Applying "Innocent Spouse"
Provisions), 4 Examination, Internal Revenue Manual (CCH):
(7) * * * If it is proposed to hold both spouses
liable, but not to the same extent, in respect of the
total deficiency, two computations * * * will be
required. First, a computation of the total
deficiency, including any applicable penalties should
be made, without taking into consideration the innocent
spouse provisions. Next, a separate computation of the
liability, including penalties, of the non-culpable
spouse. This computation will start with the total
corrected taxable income without regard to the innocent
spouse provisions and will eliminate therefrom the
adjustments for which relief is provided under such
4 In addition to the $900,525 claimed loss, two self-
operating mathematical items are also considered--a $8,147
reduction for "medical" and a $300 increase for "contributions".
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