- 23 -
as respondent argues, the regulations could have simply said
that.
But Example (5) of the final regulations indicates that the
alternative allocation method of section 6015(d)(3)(B) is applied
to both W and H, even though the erroneous deduction is initially
H’s item. This is illustrated by the fact that H is denied
relief under the actual knowledge exception. The actual
knowledge exception contained in section 6015(c)(3)(C) denies
relief only if the Commissioner proves that the electing
individual had actual knowledge of an item allocable to the other
individual.22 Thus, before the actual knowledge exception can be
applied, there must be an allocation of the items giving rise to
a deficiency. In Example (5), actual knowledge would have no
relevance if the erroneous deduction was an item entirely
allocable to H. The example makes sense only if a portion of H’s
item is reallocated to W pursuant to section 6015(d)(3)(B).
Unless respondent establishes that petitioner had actual
knowledge of the items giving rise to the deficiencies,
petitioner is entitled to relief to the extent the deficiencies
are attributable to Mr. Hopkins.
22The actual knowledge exception contained in sec.
6015(c)(3)(C) applies only in the case of “any item giving rise
to a deficiency (or portion thereof) which is not allocable to
such individual under subsection (d)”.
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