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In February of 1985, petitioners separated, and on
October 13, 1987, their divorce became final. In the divorce
decree, several of the investments previously held only in
Isaac’s name were designated as owned by Isaac and Lora jointly,
including the equipment leasing partnership investments giving
rise to the stipulated deficiencies.
On audit of petitioners’ joint Federal income tax returns
for 1979, 1980, 1981, and 1982, respondent determined
deficiencies in petitioners’ Federal income taxes, based largely
on the disallowance of claimed interest expense and partnership
losses relating to two of the equipment leasing partnerships.
Specifically, respondent determined that the partnership losses
claimed with respect to the equipment leasing partnerships were
not allowable because petitioners did not establish that the
alleged partnership transactions constitute bona fide, arm’s-
length transactions, entered into at fair market value, that such
transactions were entered into for profit, or that such
transactions had any economic substance. Respondent also
determined that the claimed interest expense deductions relating
to the equipment leasing partnerships were not allowable because
petitioners had not shown that the claimed expenses arose from a
bona fide debtor-creditor relationship.
On July 12, 2000, Lora filed a Form 8857, Request for
Innocent Spouse Relief, with regard to the above income tax
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