- 17 -
72 T.C. 1164, 1170 (1979). Congress never intended the innocent
spouse exemption to protect a spouse who turns a blind eye to
facts within her reach as to whether a substantial understatement
exists on a joint return, if such facts would have put a
reasonably prudent taxpayer on notice to inquire. Bokum v.
Commissioner, 94 T.C. at 148; Clevenger v. Commissioner, T.C.
Memo. 1986-149, affd. 826 F.2d 1379 (4th Cir. 1987). In such
instances, the Court imputes the requisite knowledge to the
putative innocent spouse unless she satisfies her duty of
inquiry. Hayman v. Commissioner, 992 F.2d at 1262; Adams v.
Commissioner, 60 T.C. 300, 303 (1973); McCoy v. Commissioner, 57
T.C. 732, 734 (1972). The relief-seeking spouse is not excused
from imputation of constructive knowledge merely because she is a
homemaker and relied on the other spouse to handle the family
finances. Stevens v. Commissioner, supra at 1507. Moreover, a
would-be innocent spouse cannot rely on ignorance of the law as a
defense. Hayman v. Commissioner, 992 F.2d at 1262.
We now apply the foregoing principles to the facts before
us.
A. The Disallowed Deduction
The record indicates that petitioner did not participate in
the daily management of Mr. Meyer's business despite her position
as an officer and director of several of her husband's companies.
Consequently, we conclude that petitioner did not have actual
knowledge of the transaction producing the understatement.
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