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income cases as “an actual and clear awareness (as opposed to
reason to know) of the existence of an item which gives rise to
the deficiency (or portion thereof).” Cheshire v. Commissioner,
supra at 195.
No evidence was presented that Ms. Sowards had actual
knowledge of the amounts that STL paid to WPA or that her husband
failed to report those items. Ms. Sowards testified that her
husband told her and she believed that the WPA bank account was
his law firm’s account, that her husband never discussed the
family’s finances, and that she did not even know of the
existence of her purported beneficial interest in WPA. We find
her testimony credible and persuasive.
In Culver v. Commissioner, supra, we held that the taxpayer
was entitled to relief because the Commissioner failed to prove
that the electing taxpayer had actual knowledge of the funds
embezzled by his wife. The Court found that despite the fact
that the embezzled funds were deposited into the couple’s joint
bank account and family expenses were paid therefrom, the
Commissioner had failed to demonstrate that the electing spouse
had actual knowledge of the embezzled funds. The Court
emphasized that the standard under section 6015(c) “is not that
of a hypothetical, reasonable person, but only that of * * * [the
electing spouse’s] actual subjective knowledge.” Id. at 197.
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