Barbara A. Vriner, A.K.A. Barbara A. Coyne - Page 6

          If the substantial understatement of tax is attributable to an              
          omission of income, the spouse seeking relief has reason to know            
          of the understatement if he or she has reason to know of the                
          transaction that gave rise to the understatement.  Guth v.                  
          Commissioner, 897 F.2d 441, 444 (9th Cir. 1990), affg. T.C. Memo.           
          1987-522; Smith v. Commissioner, 70 T.C. 651, 673 (1978).  We may           
          impute to the spouse seeking relief constructive knowledge of the           
          transaction if he or she turned a blind eye to facts within his             
          or her reach that would have put a reasonably prudent taxpayer on           
          notice to inquire further.  McCoy v. Commissioner, 57 T.C 732,              
          734 (1972).                                                                 
               In determining whether the spouse seeking relief had reason            
          to know of the substantial understatement of tax, courts                    
          generally consider, among other factors, the spouse's level of              
          education and involvement in the financial and business                     
          activities of the family.  There is no information in the record            
          concerning petitioner's educational background.  Petitioner did             
          not participate in the family's financial affairs other than                
          paying assorted bills, and there is evidence that petitioner was            
          not privy to any aspect of the Vriner family restaurant.  Nor did           
          petitioner have any knowledge of her husband's alleged drug                 
          activities prior to 1988 when Federal agents searched their home.           
               Respondent argues that petitioner had reason to know because           
          the income reported on the Vriners' 1987 return was inadequate to           
          meet the family expenses.  Petitioner testified that she thought            

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