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(D) taking into account all the facts and
circumstances, it is inequitable to hold the
other individual liable for the deficiency in tax
for such taxable year attributable to such
understatement; and
(E) the other individual elects * * * the benefits of
this subsection not later than the date which is
2 years after the date the Secretary has begun
collection activities with respect to the
individual making the election * * *.
These requirements are stated in the conjunctive, so a spouse
must satisfy all five to receive relief from joint and several
liability under section 6015(b).
Both parties agree that Linda has met requirements (A), (B),
and (E): the Haltoms filed joint returns, Jerry was solely
responsible for the embezzlement income, and Linda requested
relief within the statutory period. They disagree about whether
Linda has met the remaining requirements; namely, that she had no
reason to know of the income omitted from the returns and that
holding her liable for the tax deficiencies would be inequitable.
We consider both.
A. Knowledge or Reason To Know--Section 6015(b)(1)(C)
Both Linda and the Commissioner agree that she did not
actually know of the embezzlement and thus did not actually know
of the omitted income at the time she signed the returns. The
key question is whether she had reason to know. Sec. 1.6013-
5(a)(3), Income Tax Regs., superseded by sec. 1.6015-2, Income
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