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(C) the other individual filing the joint return
establishes that in signing the return he or she did
not know, and had no reason to know, that there was
such understatement;
(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 (in such form as
the Secretary may prescribe) 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 * * *
Respondent concedes that Mrs. Dunne meets all of these conditions
except for those found in section 6015(b)(1)(C) and (D).
Under section 6015(b)(1)(C), Mrs. Dunne is eligible for
relief under this section only if she did not know or have reason
to know at the time she signed the joint return that there was an
understatement of tax on the return.
Petitioners’ omission of income in 1997 arose because Mr.
Dunne was a shareholder of FRC until May 8, 1997, but petitioners
treated Mr. Dunne as ceasing to be a shareholder no later than
December 31, 1996. Mrs. Dunne’s Form 8857 makes it clear that
she was aware that there were some issues regarding Mr. Dunne’s
connection with FRC, but she did not know any of the
circumstances of the sale because she relied upon Mr. Dunne to
handle the tax return, and Mr. Dunne relied upon the advice of an
attorney that petitioners were not required to report the income
on the Schedule K-1.
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Last modified: March 27, 2008