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Where a spouse seeking relief has actual knowledge of the
underlying transaction that produced the omitted income, innocent
spouse relief is denied. Cheshire v. Commissioner, 115 T.C. 183,
192-193 (2000), affd. 282 F.3d 326 (5th Cir. 2002). The
requesting spouse has “reason to know” of the understatement of
tax if he knew every fact necessary to determine the legal
consequences of the income or if such facts are reasonably within
his reach; ignorance of the attendant tax consequences is not a
defense. Mitchell v. Commissioner, 292 F.3d 800, 802-804 (D.C.
Cir. 2002), affg. T.C. Memo. 2000-332; Price v. Commissioner, 887
F.2d 959, 964 (9th Cir. 1989); McCoy v. Commissioner, 57 T.C.
732, 734-735 (1972).
The Court finds that petitioner has failed to satisfy the
requirement of section 6015(b)(1)(C). Petitioner had actual
knowledge of the distribution at the time that he signed the
return, which gave him reason to know of the understatement of
tax on the 1999 return. Therefore, petitioner is not entitled to
relief under section 6015(b).
Relief Under Section 6015(c)
Section 6015(c) allows proportionate tax relief (if a timely
election is made) through allocation of the deficiency between
individuals who filed a joint return and are no longer married,
are legally separated, or have been living apart for a 12-month
period.
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Last modified: May 25, 2011