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1985, petitioners filed with this Court a joint petition
contesting the notice of deficiency. Both at that time resided
in the State of California.
A test case involving the group of tax shelter partnerships
was thereafter litigated, and investment losses were held to be
nondeductible. See Krause v. Commissioner, 99 T.C. 132 (1992),
affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th
Cir. 1994). Following this decision and based on its results,
settlement negotiations were initiated with parties in related
suits.
On June 11, 1996, Judith, now represented by separate
counsel, filed a motion to amend the 1985 petition to assert her
entitlement to innocent spouse relief under former section
6013(e). The motion was served on attorneys for respondent and
for Thomas, and neither raised an objection. The Court granted
Judith’s motion and filed the amendment on June 18, 1996.
Then, in November of 1996, Judith and respondent entered
into a stipulation resolving all issues with respect to Judith
except that of innocent spouse relief. The settlement stated
that, without considering the innocent spouse provisions of
section 6013(e), an income tax deficiency of $21,711 was due from
Judith for the 1981 taxable year, with increased interest under
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