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section 6015(c)(3)(C). Although the word “item” is not defined in
section 6015(c)(3)(C), we believe that in omitted income situations
“item” refers to the item of income that should have been reported
on the return . An example contained in the report issued by the
Joint Committee on Taxation, accompanying RRA 1998, supports this
interpretation:
The rule that the election will not apply to the
extent any deficiency is attributable to an item the
electing spouse had actual knowledge of is expected to be
applied by treating the item as fully allocable to both
spouses. For example, a divorced couple filed a joint
return during their marriage with wage income of $150,000
allocable to the wife and $30,000 of self-employment
income allocable to the husband. On examination, an
additional $20,000 of the husband’s self-employment
income is discovered, resulting in a deficiency of
$9,000. The IRS proves that the wife had actual
knowledge of $5,000 of this additional self-employment
income, but had no knowledge of the remaining $15,000.
In this case, the husband would be liable for the full
amount of the deficiency, since the item giving rise to
the deficiency is fully allocable to him. In addition,
the wife would be liable for the amount that would have
been calculated as the deficiency based on the $5,000 of
unreported income of which she had actual knowledge.
Even if the wife elects to limit the liability for the
deficiency under this provision, the IRS would be allowed
to collect that amount from either spouse, while the
remainder of the deficiency could be collected only from
the husband. [Emphasis supplied.]
Staff of Joint Comm. on Taxation, General Explanation of Tax
Legislation Enacted in 1998, at 70 (J. Comm. Print 1998).
The meaning we give to an “item” that gives rise to a
deficiency, for purposes of the knowledge requirement found in
section 6015(c)(3)(C), is consistent with that of other sections of
the Code where the word “item” is used. See, e.g., CIA v. Sims,
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