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persuade us that it is more likely than not that Nancy did not
know of the State Coal investment by the time the 1981 tax return
was signed; petitioners have clearly carried this burden of
proof.
We next consider whether Nancy should have known of the
State Coal investment. Courts have considered several factors in
deciding whether a taxpayer had reason to know of a substantial
understatement of tax attributable to the grossly erroneous item
(in the instant case, the State Coal deduction), including (1)
the putative innocent spouse's level of education, (2) his or her
involvement in the family's business and financial affairs, (3)
the putative guilty spouse's evasiveness and deceit about the
family's finances, and (4) the presence of lavish or unusual
expenditures or any large unexplained increase in the family's
standard of living. Flynn v. Commissioner, 93 T.C. 355, 365-366
(1989).
Nancy received a B.A. degree in English literature from the
University of Cincinnati in 1964. Nancy was in charge of the
household. She paid for household items out of a joint checking
account; the funds deposited into the account came from Sheldon.
Nancy was generally aware of Sheldon's business and investment
activities, and was aware of (1) Sheldon's sale of Dawn Joy
interest before it took place, (2) Sheldon's Royal Green Fashion
investment when it took place, and (3) Sheldon's investments in
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