Sherburne M. Edmondson, Jr. and Diane L. Edmondson - Page 12

                                         -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