Joseph L. Barnhill, Jr. and Cynthia A. Barnhill - Page 7

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          deceit concerning the couple’s finances.  Price v. Commissioner,            
          supra; Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir.              
          1989), affg. T.C. Memo. 1988-63.                                            
               A spouse cannot obtain the benefits of innocent spouse                 
          protection “<by simply turning a blind eye to--by preferring not            
          to know of--facts fully disclosed on a return, of such a large              
          nature as would reasonably put such spouse on notice that further           
          inquiry needs to be made.’”  Price v. Commissioner, supra at 965-           
          966 (quoting Levin v. Commissioner, T.C. Memo. 1987-67).  If a              
          duty of inquiry arises and is not satisfied by the spouse, then             
          constructive knowledge of the understatement may be imputed to              
          that spouse.  Price v. Commissioner, supra.                                 
               As set out above, in this case, the tax returns signed by              
          Mrs. Barnhill, during some of the years in which substantial                
          improvements were being made to petitioners’ personal residence,            
          claimed substantial losses and reported large negative amounts of           
          adjusted gross income.  A reasonably prudent taxpayer in                    
          Mrs. Barnhill’s situation would thus have been put on notice of             
          and would have had a duty to inquire about the claimed tax                  
          losses.  Because she failed even to look at the returns that she            
          signed, Mrs. Barnhill failed to satisfy her duty of inquiry.  Cf.           
          Pietromonaco v. Commissioner, 3 F.3d 1342 (9th Cir. 1993), revg.            
          T.C. Memo. 1991-361, in which the Court of Appeals for the Ninth            
          Circuit concluded that, even if the wife had reviewed the return            
          in question, the difference between the reported expenditures and           




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