- 21 - 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,Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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