Patricia S. Makalintal - Page 21

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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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