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from Boulder Oil and Gas, because Mr. Hendricks did not bring any
of this mail home.
Petitioner’s lack of knowledge regarding the transaction is
corroborated by the Hendrickses’ testimonies at trial. Mr.
Hendricks testified that he did not discuss business or financial
matters, including his investment in Boulder Oil and Gas, with
petitioner and that he did not consult petitioner when he decided
to make the investment.
Having observed the Hendrickses’ appearances and demeanors
at trial, we find their testimonies to be honest, forthright, and
credible. In view of their testimonies, we find that petitioner
did not have actual knowledge of Mr. Hendricks’s investment in
Boulder Oil and Gas at the time the joint 1983 tax return was
signed.
Section 6015(b)(1)(C) also requires that petitioner
establish that she did not have reason to know that there was an
understatement. Whether petitioner had reason to know of an
understatement is a question of fact which must be determined
based upon the entire record. Guth v. Commissioner, 897 F.2d
441, 442 (9th Cir. 1990), affg. T.C. Memo. 1987-522; Terzian v.
Commissioner, 72 T.C. 1164, 1170-1172 (1979). Petitioner had
reason to know of an understatement if a reasonably prudent
taxpayer under her circumstances could be expected to know that
the tax liability stated was erroneous or that further
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