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Factors relevant to the consideration of whether a spouse
had reason to know of a substantial understatement include:
(1) The spouse's level of education; (2) the spouse's involvement
in the business and financial affairs of the marriage and of the
transactions that give rise to the understatement; (3) the
presence of expenditures that appear lavish or unusual when
compared to the taxpayers’ accustomed standard of living and
spending patterns; and (4) the culpable spouse's evasiveness and
deceit concerning family finances. Pietromonaco v. Commissioner,
supra at 1345; Price v. Commissioner, supra at 965; Stevens v.
Commissioner, supra at 1505.
A spouse's specific and detailed knowledge of the underlying
transaction or business giving rise to the income omitted from
the return may, in certain circumstances, be treated as putting
the spouse on notice of the understatement. McCoy v.
Commissioner, 57 T.C. 732 (1972); Mayworm v. Commissioner, T.C.
Memo. 1987-536. Also relevant is the extent to which family
expenses, about which the spouse had knowledge or awareness,
exceeded reported income. Pietromonaco v. Commissioner, supra at
1345; Hammond v. Commissioner, 938 F.2d 185 (8th Cir. 1991),
affg. without published opinion T.C. Memo. 1990-22. Involvement
by a spouse in a family's financial affairs may give rise to a
reason to know of an understatement. Shea v. Commissioner, 780
F.2d 561, 567 (6th Cir. 1986), affg. in part, revg. in part, and
remanding in part T.C. Memo. 1984-310; Sanders v. United States,
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