- 39 -
cantly improved during those years. Petitioner's family expendi-
tures during the years at issue were not lavish compared to her
standard of living during the years prior to those years.30
Although petitioner and Mr. Morris made two large expenditures
during 1987, viz., paying off the $17,560.77 mortgage on their
house and paying $20,000 toward the purchase of the Illinois
land, the source of the funds used to make those expenditures was
the $40,000 bonus that Mr. Morris received during 1987.31
Based on our examination of the entire record in this case,
we are persuaded, and we find, that a reasonably prudent person,
under the circumstances of petitioner, could not have been
expected to know at the time she signed each of the joint returns
in question that each such return contained a substantial under-
statement attributable to the unreported embezzlement income or
30 We note that Mr. Morris began embezzling funds from John
Kenny Company several years prior to the years at issue, and
there is no reason to believe that petitioner's standard of
living improved during the years at issue as a result of the
embezzled funds.
31 Respondent further contends, and petitioner concedes, that
Mr. Morris transferred to petitioner ownership of a life insur-
ance policy that had a cash value of $15,000. Apparently, it is
respondent's view that that transfer should have caused peti-
tioner to investigate further whether the joint returns in
question contained substantial understatements. We disagree. It
is unclear from the record when Mr. Morris transferred ownership
of that policy to petitioner. Nor does the record disclose the
source of the premium payments on that policy. Petitioner
testified that during the years at issue she paid the premiums
for a life insurance policy with funds in the joint checking
and/or savings accounts, but it is not clear from the record
whether those premiums were for the policy, ownership of which
Mr. Morris transferred to her.
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