Linda K. Haltom - Page 9

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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         5(a)(3), Income Tax Regs., superseded by sec. 1.6015-2, Income               

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