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activity for 3 out of the 4 years in issue. Again, petitioner
bore the burden of proving the appropriate allocation, and our
finding that this item was allocable to Mr. Rowe was based in
large part on petitioner’s testimony that she did not know that
she was listed as a proprietor of the activity. On the basis of
the facts known to him and the relevant law, we believe that
respondent was substantially justified in his position that half
of this item was allocable to petitioner.
In King v. Commissioner, supra, we decided for the first
time that the Commissioner must show that the electing spouse had
“actual knowledge of the factual circumstances which made the
item unallowable as a deduction” in order for the electing spouse
to be denied relief under section 6015(c) for an item (or portion
thereof) which is not allocable to her. Id. at 204. In that
case, we applied this standard where the Commissioner disallowed
deductions on the basis of the determination that a horse
activity was not engaged in for profit within the meaning of
section 183. We required that the Commissioner show that the
electing spouse knew or believed that the other spouse was not
engaged in the horse activity for profit. Id. at 205. King was
filed on April 10, 2001, after the trial was held in this case.
Although we disagreed with respondent’s argument that
petitioner had actual knowledge under section 6015(c), we believe
that respondent had a reasonable basis in both law and fact for
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