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substantial understatement of tax attributable to Mr. Acquaviva.
Accordingly, we must decide whether: (1) Petitioner lacked
actual and constructive knowledge of the understatements; and
(2) it would be inequitable to hold her liable for the
deficiencies.
1. Knowledge or Reason To Know
Courts have consistently held that the knowledge
contemplated by section 6013(e)(1)(C) is knowledge of the
underlying transaction and not of the tax consequences of that
transaction. Purcell v. Commissioner, 86 T.C. 228, 237-238
(1986), affd. 826 F.2d 470 (6th Cir. 1987). Petitioner must show
a lack of actual knowledge as well as that she had no reason to
know of the substantial understatement. In determining whether
petitioner had reason to know within the meaning of section
6013(e)(1)(C), we must inquire whether a reasonably prudent
person, under petitioner's circumstances, could have been
expected to know at the time of signing each of the returns that
the returns contained a substantial understatement. Bokum v.
Commissioner, 94 T.C. 126, 148 (1990), affd. 992 F.2d 1132 (11th
Cir. 1993).
We look to the following factors to determine whether or not
petitioner had reason to know that the returns in question
contained a substantial understatement: (1) Petitioner's level
of education; (2) petitioner's involvement in the family's
business and financial affairs; (3) whether there was a
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