- 14 - Charles assured her that the deduction was proper and had been approved by the certified public accountant who prepared and signed the return. After the Commissioner disallowed the deduction and Charles and Patricia were divorced, Patricia claimed relief from joint and several liability under former section 6013(e). Following the law in omitted income cases, the Tax Court denied Patricia’s claim for relief from joint and several liability because Patricia was aware of the existence of the transaction underlying the deduction–-the existence of her husband’s gold mining investment. The Court of Appeals for the Ninth Circuit reversed and granted Patricia’s request for relief from joint and several liability. The Court of Appeals held that in erroneous deduction cases, unlike omitted income cases, the requesting spouse’s mere knowledge of the existence of the transaction underlying the deduction is not enough to deny relief. In order to be denied relief, the requesting spouse must know or have reason to know “that the deduction would give rise to a substantial understatement.” Id. at 963. While ignorance of the legal or tax consequences of an item which gives rise to a deficiency is no defense, something more than mere knowledge of the transaction is required: Thus, if a spouse knows virtually all of the facts pertaining to the transaction which underlies thePage: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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