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During 1983 and 1984, petitioners constructed a home costing
approximately $400,000; petitioner assumed responsibility (as
between the Pewitts) for the project.
Petitioners' investment in Media Marketers and Assured
Communications resulted in their receiving joint tax refunds for
years 1980 through 1984, totaling more than $12,000. Additionally,
petitioners were able to shield approximately 50 percent of their
gross wages in 1984 and 1985 with the losses attributable to their
investments in the two partnerships.
In 1986, Mr. Pewitt purchased for petitioner a Corvette
automobile and a $6,000 diamond ring. Upon the Pewitts' divorce,
neither took assets of any substance from the marriage, and in fact
both subsequently declared bankruptcy.
OPINION
Spouses who file a joint return generally are jointly and
severally liable for its accuracy and the tax due, including any
additional taxes, interest, or penalties determined on audit of the
return. Sec. 6013(d)(3). However, pursuant to section 6013(e), a
spouse (commonly referred to as an innocent spouse) can be relieved
of tax liability if that spouse proves: (1) A joint return was
filed; (2) the return contained a substantial understatement of tax
attributable to grossly erroneous items of the other spouse; (3) in
signing the return, the spouse seeking relief did not know, and had
no reason to know, of the substantial understatement; and (4) it
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