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not establish that (1) they actually acquired the gemstones; (2)
they had any basis in the gemstones; or (3) the gemstones had any
value. At trial respondent stipulated that the Gospel Fellowship
received the gemstones from petitioner. The Hemmingses have
abandoned their claim that the value of the gemstones was
$320,756, but now contend that the value was $150,000.
Discussion
Innocent Spouse
The parties agree that Mr. and Mrs. Hemmings are not
entitled to claim the losses resulting from the ACLI and ELMS
transactions. Mrs. Hemmings contends, however, that she is
entitled to relief as a so-called innocent spouse under section
6013(e) for the taxable years 1978, 1979, and 1980.6 For Mrs.
Hemmings to prevail, she has the burden of establishing: (1)
That a joint return was made; (2) that there was a substantial
understatement of tax and that the understatement was due to
grossly erroneous items attributable to Mr. Hemmings; (3) that,
in signing the returns, she did not know, or have reason to know,
of the substantial understatement; and (4) taking into account
6 Prior to its amendment in 1984, sec. 6013(e) only
granted innocent spouse relief in cases where the understatement
was attributable to omissions of income. E.g., Vesco v.
Commissioner, T.C. Memo. 1979-374. The years before the Court
here are 1978, 1979, and 1980. Sec. 424(a) of the Tax Reform Act
of 1984 (Division A of the Deficit Reduction Act of 1984), Pub.
L. 98-369, 98 Stat 494, 801-802, amended sec. 6013(e) to extend
to cases where an understatement of income results from a
disallowed deduction. The amendment applies retroactively to all
open years to which the Internal Revenue Code of 1954 applies.
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