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The parties do not dispute that the Joneses filed a joint
return for the 1981 taxable year.4 Additionally, respondent
agrees that the deductions claimed with respect to the Auburn
Mining partnership were grossly erroneous.5 Finally, respondent
concedes that petitioner did not actually know of Mr. Jones’
investment in the Auburn Mining partnership. The dispute,
therefore, as to the Auburn Mining partnership centers on two
questions; i.e., whether petitioner had reason to know of the
substantial understatement and whether it is inequitable to hold
petitioner liable for the understatement. As to the Choate
Square partnership, in addition to the foregoing two matters, the
question of whether the deductions were grossly erroneous remains
to be decided as well.
The relevant standard by which a claim that a taxpayer is an
innocent spouse must be judged is whether “a reasonably prudent
taxpayer in his or her position could be expected to know that
the stated tax liability was erroneous or that further
investigation was warranted.” Park v. Commissioner, supra at
4
The parties have agreed that for purposes of defining
"substantial understatement" under sec. 6013(e): (1) The taxable
year 1987 is petitioner’s "preadjustment year"; (2) petitioner's
adjusted gross income for 1987 does not exceed $20,000; and (3)
the deficiency attributable to the Auburn Mining partnership in
1981 exceeds 10 percent of petitioner's adjusted gross income for
1987.
5
Respondent does not concede that the deductions for the
Choate Square partnership taken on the Joneses’ 1981 return are
grossly erroneous.
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