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made reasonable efforts to investigate the accuracy of
the joint return remains ignorant of its illegitimacy.
[Id.]
In Friedman v. Commissioner, supra, the husband was a
financially successful mortgage broker, and the wife was a
widowed mother of two who, prior to the couple's marriage, had
been the future husband's secretary. The Court of Appeals
considered the couple's lifestyle as one which could be
characterized as "lavish", made possible by the husband's
business success. The substantial understatements of tax on the
returns in question resulted from the husband's participation in
a computer-leasing transaction that the Court described as a
"complex international tax shelter". Friedman v. Commissioner,
supra at 530. The wife was aware of the transaction, but did not
understand it and because of her husband's business acumen
assumed it to be legitimate.
The Court of Appeals in the Friedman case applied the test
enunciated in Hayman v. Commissioner, supra, that required a
taxpayer to establish that she or he did not know and did not
have reason to know that the deduction would give rise to a
substantial understatement. Friedman v. Commissioner, supra at
530.
The Court of Appeals in Hayman listed four factors to
consider in deciding whether a reasonably prudent person in the
"innocent" spouse's position at the time she signed a return
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