- 14 -
have realized her responsibility for reviewing the returns she
signed. Consequently, petitioner's failure to review returns
that she signed under penalties of perjury cannot be excused.
Terzian v. Commissioner, 72 T.C. 1164, 1170-1171 (1979).
The Court of Appeals for the Second Circuit has held that
the magnitude of the deductions claimed on a return may give rise
to a duty to inquire as to the propriety of the deductions.
Friedman v. Commissioner, 53 F.3d 523, 531 (2d Cir. 1995),
(citing Hayman v. Commissioner, supra), affg. in part and revg.
in part and remanding T.C. Memo. 1993-549. The duty of inquiry
generally arises with respect to "tax returns setting forth large
deductions, such as tax shelter losses offsetting income from
other sources and substantially reducing or eliminating the
couple's tax liability". Hayman v. Commissioner, supra at 1262.
In the instant case, we believe that even a cursory review
of the returns for the taxable years in issue would have alerted
petitioner to the high probability that such returns contained
substantial understatements. The 1980 return reported a gain of
$408,097 on Schedule D that was offset by a loss of $407,884
reported on Schedule E, which included a loss of $508,045 from
TSM Associates. That return reported adjusted gross income of
only $8,055 for the taxable year 1980, and tax due of $240.11
11
During 1980, Mr. Crowley earned $122,683 in commissions from
Sinclair Securities Company.
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