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returns. Under this exception, items giving rise to a deficiency
that are attributable to the nonrequesting spouse must also be
attributed to the requesting spouse if the requesting spouse
received a “tax benefit” from the items on the joint return. The
legislative history explains the operation of the “tax benefit”
exception:
If the deficiency arises as a result of the denial of
an item of deduction or credit, the amount of the
deficiency allocated to the spouse to whom the item of
deduction or credit is allocated is limited to the
amount of income or tax allocated to such spouse that
was offset by the deduction or credit. The remainder
of the liability is allocated to the other spouse to
reflect the fact that income or tax allocated to that
spouse was originally offset by a portion of the
disallowed deduction or credit. [H. Conf. Rept.
105-599, at 252 (1998), 1998-3 C.B. 747, 1006.]
Both the conference committee report and the proposed regulations
contain an example under which an erroneous deduction
attributable to the nonrequesting spouse (in excess of the
nonrequesting spouse’s separate return income) reduces the
requesting spouse’s hypothetical separate return tax liability,
resulting in a tax benefit to the requesting spouse. See id.;
sec. 1.6015-3(d)(5) Example 6, Proposed Income Tax Regs., 66
Fed. Reg. 3900 (Jan. 17, 2001).
In the case at hand, petitioner would have been required to
pay tax on her share of the income reported on each joint return
had she filed a separate return. Because of the erroneous
Shorthorn partnership deductions attributed to intervenor,
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