-12-
under the circumstances of the spouse [here, petitioner] at the time
of signing the return could be expected to know that the tax
liability stated 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; see Bokum v. Commissioner, 94 T.C.
at 148; Griner v. Commissioner, T.C. Memo. 1990-301, affd. without
published opinion 951 F.2d 360 (9th Cir. 1991).
The test for constructive knowledge of an understatement is a
subjective one, focusing on the following factors: (1) The spouse's
level of education; (2) the spouse's involvement in the business and
financial affairs of the marriage and in the transactions that gave
rise to the understatement; (3) the presence of expenditures that
appear lavish or unusual when compared to the taxpayers' accustomed
standard of living and spending patterns; and (4) the culpable
spouse's evasiveness and deceit concerning family finances. Price
v. Commissioner, 887 F.2d at 965.
Petitioner had little knowledge of financial matters and was
only tangentially involved in family finances. However, Mr.
Edmondson did not hide any assets or transactions from her;
petitioner refused to inquire into the details of the family's
finances and income taxes. She neither reviewed the 1988 return,
took any steps to verify the accuracy of its contents, nor made any
inquiries about it. A taxpayer cannot simply turn a blind eye to
what is disclosed on the tax return. The innocent spouse provision
is "designed to protect the innocent, not the intentionally
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011