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to look at whether “the requesting spouse did not know and had no
reason to know that the liability would not be paid.”
But what did David not know and when did he not know it?
The parties agree that David was ignorant of his wife’s
embezzlement when he signed the original return. They also agree
that when he signed the amended return he knew about the
embezzled income and that the taxes on it would not be paid.
Looking at the procedure’s description of when the knowledge
factor weighs against relief doesn’t help much either. That part
of the procedure tells us to ask whether a “requesting spouse
knew or had reason to know of the item giving rise to a
deficiency or that the reported liability would be unpaid at the
time the return was signed.” Rev. Proc. 2000-15, sec.
4.03(2)(b), 2000-1 C.B. at 449. Neither section tells us when to
measure the knowledge of a requesting spouse who signed both an
original and an amended return.
When the Commissioner made his determination, he assumed
that the right time to measure the state of David’s knowledge was
when David signed the amended return, but he didn’t explain his
assumption. The problem for us on review is that it would have
been just as reasonable for the Commissioner to measure David’s
knowledge when he signed the original return. If he had done so,
David’s conceded ignorance of the embezzled income when he signed
the original return would have caused the Commissioner to find
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Last modified: November 10, 2007