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In Rowe v. Commissioner, supra, we found that the electing
taxpayer did not have actual knowledge of omitted income
distributed from an IRA opened in her name. The Commissioner
attempted to establish the requisite knowledge by citing the fact
that the IRA statements were mailed to the taxpayer’s home
address and bore the electing spouse’s name. Finding the
electing taxpayer credible, we determined that the Commissioner
failed to prove that she had an actual awareness of the omitted
income.
On the basis of the record, we hold that respondent failed
to prove that Ms. Sowards had an actual and clear awareness of
the omitted income. Ms. Sowards credibly testified that she did
not know of the nature and amounts of the payments made by STL to
WPA, which was confirmed by Mr. Sowards’s testimony.
Accordingly, we hold that petitioner is entitled to relief from
liability under section 6015(c) for the omitted income.
(b) Erroneous Deductions
In King v. Commissioner, 116 T.C. 198, 204 (2001), we held
that “the proper application of the actual knowledge standard in
section 6015(c)(3)(C), in the context of a disallowed deduction,
requires respondent to prove that petitioner had actual knowledge
of the factual circumstances which made the item unallowable as a
deduction.” In that case, the Commissioner disallowed a
deduction because the electing taxpayer’s former spouse lacked
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