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to grossly erroneous items of one spouse, (3) in signing the
return, the alleged innocent spouse did not know, and had no
reason to know, of the substantial understatement, and (4) taking
into account all the facts and circumstances, it would be
inequitable to hold the alleged innocent spouse liable for the
deficiency attributable to the understatement. Sec. 6013(e)(1);
Friedman v. Commissioner, 53 F.3d 523 (2d Cir. 1995), affg. in
part and revg. in part T.C. Memo. 1993-549; Hayman v.
Commissioner, 992 F.2d 1256, 1259 (2d Cir. 1993), affg. T.C.
Memo. 1992-228. The claimant of innocent spouse relief, in this
case Mrs. Fields, must prove that each of these elements is
satisfied. The failure to prove any of these prongs will
preclude innocent spouse relief. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933); Bliss v. Commissioner, supra
at 378. The innocent spouse provision was enacted to remedy
"grave injustice"; however, it is "construed and applied
liberally in favor of the person claiming its benefits." Bliss
v. Commissioner, supra at 378 (citations and quotation marks
omitted).
The parties focus on the last two prongs of the four-prong
test, and we will do likewise, starting our analysis with the
third prong. In cases involving the omission of income, such as
the instant case, the fact that an alleged innocent spouse knew
of the transaction that produced the omitted income ordinarily
will prevent him or her from qualifying for innocent spouse
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