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Wilfong v. United States, 991 F.2d 359, 364 (7th Cir. 1993);
Sokol v. Commissioner, 92 T.C. 760, 765 (1989); Wasie v.
Commissioner, 86 T.C. 962, 968-969 (1986). The reasonableness of
respondent's position necessarily requires considering what
respondent knew at the time she took the position and the events
that occurred afterwards. See Rutana v. Commissioner, 88 T.C.
1329, 1334 (1987); Don Casey Co. v. Commissioner, 87 T.C. 847,
862 (1986); DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).
To establish eligibility for innocent spouse relief, a
taxpayer must establish that: (1) A joint Federal income tax
return was filed; (2) there is a substantial understatement of
tax attributable to grossly erroneous items of the other 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 such
substantial understatement. Sec. 6013(e)(1). At issue in these
cases were items (3) and (4) above.
Factors to be considered in determining whether the spouse
had reason to know are: the alleged innocent spouse's level of
education; the spouse's involvement in the family's business and
financial affairs; the presence of expenditures that appear
lavish or unusual when compared to the family's past levels of
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