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individual making the election,
then the other individual shall be relieved of
liability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent such
liability is attributable to such understatement.
The requirements of section 6015(b)(1) are stated in the
conjunctive; that is, a taxpayer must satisfy all of the
requirements of subparagraphs (A) through (E) to be entitled to
relief under section 6015(b)(1). There is no dispute in the
instant case that Barbara satisfies the requirements of
subparagraphs (A), (B), and (E). Respondent, however, contends
that Barbara knew or had reason to know of the understatement
and, therefore, fails to satisfy subparagraph (C). Respondent
further contends that it would not be inequitable to hold Barbara
liable for the deficiency, and therefore, she fails to satisfy
subparagraph (D).
When the substantial understatement of tax liability is
attributable to an omission of income from the joint return, the
spouse's knowledge or reason to know of the underlying
transaction which produced the omitted income is sufficient to
preclude relief under section 6015(b)(1). See Cheshire v.
Commissioner, 115 T.C. 183, 192 (2000). In the Cheshire case,
the taxpayer knew of the entire amount of retirement
distributions and interest earned, even though she did not know
they were taxable.
Although Barbara knew that Raymond bought, sold, and traded
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