- 22 - has the burden of proving by a preponderance of the evidence that petitioner, at the time of signing the returns, had actual knowledge of the items giving rise to the deficiency that otherwise would have been allocated solely to intervenor under the separate return rule. See sec. 6015(c)(3)(C) (“If the Secretary demonstrates * * * actual knowledge”); Culver v. Commissioner, supra. In King v. Commissioner, 116 T.C. 198, 203 (2001), this Court considered the standard for “actual knowledge of the item giving rise to the deficiency” applicable to erroneous deductions under section 6015(c)(3)(C). There, the taxpayer filed a joint return with her husband, Curtis Freeman, and claimed significant losses from Freeman’s cattle ranching operations. The taxpayer knew that the cattle ranch was not profitable but did not know that Freeman lacked a profit motive for engaging in the activity, which was the critical fact underlying the Commissioner’s determination that Freeman was not entitled to deduct the losses under section 183. This Court held that the taxpayer was entitled to relief under section 6015(c), even though the taxpayer was aware of the activity giving rise to the erroneous deduction (the cattle ranching activity) because she did not know the predicate facts causing the losses to be nondeductible (i.e. her husband’s lack of a profit motive): The question in this case, therefore, is not whether petitioner knew the tax consequences of a not-Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Next
Last modified: May 25, 2011