- 18 -
instant case, we conclude that, at the time she signed the
returns for the taxable years in issue, petitioner had reason to
know of the substantial understatements in issue.
Petitioner contends that the Court of Appeals' decision in
Friedman v. Commissioner, supra, "limits" Hayman v. Commissioner,
supra, with respect to the "reason to know" requirement of
subsection 6013(e)(1)(C). Petitioner interprets the Court of
Appeals' decision in Friedman v. Commissioner, supra, to mean
that the mere fact that a large deduction was claimed from an
investment partnership does not cause the alleged innocent spouse
to have reason to know of the substantial understatement, where
the spouse relied upon representations from her husband that such
deduction was proper and where the taxpayer was not very
sophisticated in financial matters. According to petitioner,
when she signed the tax returns for the taxable years in issue,
she was young and very unsophisticated in financial matters,
having just arrived from Canada.
14(...continued)
rests on liability, not guilt. An innocent spouse
within the meaning of [sec. 6013(e)] is innocent vis-a-
vis a guilty spouse whose income is concealed from the
innocent and spent outside the family. [Bliss v.
Commissioner, 59 F.3d 374, 380 n.3 (2d Cir. 1995),
affg. T.C. Memo. 1993-390.]
As in Bliss v. Commissioner, supra, there is no evidence in the
record that suggests that Mr. Crowley was evasive or deceitful
with respect to their finances or that he attempted to conceal
the fact that he had engaged in commodities straddle
transactions.
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