Kathryn Cheshire - Page 17




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          slip and discussed with her the purposes for which the retirement           
          distribution proceeds would be used.                                        
               Petitioner also had actual knowledge that interest was earned          
          on the Austin Telco account.  At all times, petitioner was aware of         
          the balance in this account and frequently wrote checks drawn on            
          its funds.  Moreover, bank statements and a Form 1099, Interest             
          Income, setting forth the amount of interest earned on the account          
          were sent to petitioner’s home.  Thus, petitioner does not satisfy          
          the no knowledge of the understatement requirement of section               
          6015(b)(1)(C).  Moreover, because petitioner knew, or had reason to         
          know, of the entire amount of the retirement distributions and the          
          interest earned on the Austin Telco account, she is not entitled to         
          proportionate relief under section 6015(b)(2).                              
               B.  Relief Under Section 6015(c)                                       
               In general, section 6015(c) allows proportionate tax relief            
          (if a timely election is made) through allocation of the deficiency         
          between individuals who filed a joint return and are no longer              
          married, are legally separated, or do not reside together for a 12-         
          month period.  Such allocation, however, is not permitted if the            
          Secretary demonstrates that the individual electing relief had              
          actual knowledge, at the time the return was signed, of any item            
          giving rise to a deficiency (or portion thereof) which is not               
          allocable to such individual.  See sec. 6015(c)(3)(C).  For                 
          purposes of section 6015(c), unlike for purposes of section 6015(b)         






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