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grossly erroneous items of Mr. Barnhill. Respondent contends,
however, that Mrs. Barnhill has not satisfied the requirements of
section 6013(e)(1)(C) or (D).
The undisputed testimony of petitioners is that Mr. Barnhill
made all financial decisions during the marriage and that
Mrs. Barnhill did not have actual knowledge concerning Winchester
Oil and Gas Associates or the contents of petitioners’ tax
returns. Mrs. Barnhill testified that she was uneasy about
signing “legal documents” but that she trusted Mr. Barnhill with
respect to the tax returns and believed his representation that
she was required by law to sign them. She testified also that
she never read nor made an attempt to read the tax returns and
that, therefore, she was unaware of the contents.
A spouse seeking relief under section 6013(e) has reason to
know of substantial understatements on joint returns “if a
reasonably prudent taxpayer in her position at the time she
signed the return could be expected to know that the return
contained the substantial understatement” or that further
investigation was warranted. Price v. Commissioner, 887 F.2d
959, 965 (9th Cir. 1989), revg. an Oral Opinion of this Court.
The test is a subjective one, looking to such factors as the
alleged innocent spouse’s level of education, involvement in the
family’s financial affairs, the presence of lavish or unusual
expenses or any large unexplained increases in the family’s
standard of living, and the culpable spouse’s evasiveness and
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