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tax. Sec. 6013 (e)(1)(C). The record clearly shows that Mrs.
Gaskins had no actual knowledge of any understatement of Mr.
Gaskins' income and the resulting substantial understatement of
tax. The question is whether she had reason to know about such
understatement. A spouse has "reason to know" if a reasonably
prudent taxpayer under the taxpayer's circumstances at the time
of signing of the return could be expected to know the return
was erroneous or that further investigation was warranted.
Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989),
affg T.C. Memo. 1988-63; Bokum v. Commissioner, 94 T.C. at 148.
A taxpayer cannot close her eyes to facts or unusual
expenditures that might give her reason to know of unreported
income and a substantial understatement of tax.5 Terzian v.
Commissioner, 72 T.C. 1164, 1170-1171 (1979); Mysse v.
Commissioner, 57 T.C. 680, 699 (1972). If a spouse knows enough
facts to be put on notice of the possibility of a substantial
understatement, she has a duty to inquire further. Guth v.
Commissioner, 897 F.2d 441, 444-445 (9th Cir. 1990), affg. T.C.
Memo. 1987-522; Weiss v. Commissioner, T.C. Memo. 1995-70.
Failure to inquire may cause knowledge of the understatement to
be imputed to the taxpayer. Price v. Commissioner, 887 F.2d 959,
965 (9th Cir. 1989) (citing Levin v. Commissioner, T.C. Memo.
1987-67); McCoy v. Commissioner, 57 T.C. 732, 734 (1972).
Factors to be considered in determining whether the spouse
had reason to know are the alleged innocent spouse's level of
education; the spouse's involvement in the family's business and
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