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(the court to which this case would ordinarily be appealed) in
Friedman v. Commissioner, 53 F.3d 523 (2d Cir. 1995), affg. in
part, revg. in part and remanding in part T.C. Memo. 1993-549;
and Hayman v. Commissioner, 992 F.2d 1256 (2d Cir. 1993), affg.
T.C. Memo. 1992-228.
In Friedman v. Commissioner, 53 F.3d at 525, the Court of
Appeals stated the issue in that case in a way that also
succinctly states the issue in this case, to wit: whether an
individual is entitled to assert the innocent spouse defense to
avoid joint tax liability for tax transactions of which he or she
was aware but did not thoroughly understand. We take the liberty
of quoting at some length from the Friedman case because we
believe it appropriately points the way to a resolution of our
case:
The "innocent spouse" exemption was not designed to
protect willful blindness or to encourage the
deliberate cultivation of ignorance. Extravagant tax
savings may alert even a financially unsophisticated
spouse to the possible improprieties of a tax scheme.
Nevertheless, we recognize that in the bewildering
world of tax shelter deductions, few experts, let alone
laypersons, easily discern the difference between a
fraudulent scheme and an exceptionally advantageous
legal loophole in the tax code. There is a common
sense limit we think to a spouse's duty of
investigation in those circumstances where the more
financially sophisticated spouse invokes the support of
tax experts and accountants in asserting an improper
deduction. The wife claiming status as an innocent
spouse under such circumstances must persuade the fact-
finder that she had no reason to suspect that what her
more financially sophisticated husband did was wrong.
In short, an innocent spouse is one who despite having
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