-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 intentionallyPage: 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