- 16 -
designed to protect the innocent, not the intentionally ignorant.
Shannon v. Commissioner, T.C. Memo. 1991-207.
In deciding whether petitioner "had reason to know" of the
substantial understatements when she signed the returns, we also
take into account the factors that the Court of Appeals for the
Second Circuit has held are to be considered in making such a
decision: (1) The spouse's level of education; (2) the spouse's
involvement in the family's business and financial affairs; (3)
the presence of expenditures that appear lavish or unusual when
compared with the family's past levels of income, standard of
living, and spending patterns; and (4) the culpable spouse's
evasiveness and deceit concerning their finances. Friedman v.
Commissioner, supra at 531-532 (citing Hayman v. Commissioner,
supra at 1261). The foregoing factors are considered "because,
ordinarily, they predict what a prudent person would realize
regardless of the other spouse's evasiveness or deceit." Bliss
v. Commissioner, 59 F.3d 374, 379 (2d Cir. 1995), affg. T.C.
Memo. 1993-390.
Applying such factors to the facts of the instant case, we
conclude that petitioner had reason to know of the substantial
understatements when she signed the returns for the taxable years
in issue. Petitioner was a college-educated stockbroker who had
passed the "series seven" examination. She was a former life
insurance agent. Petitioner's involvement in the couple's
business and financial affairs was also significant. Petitioner
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011