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We now turn, as instructed, to the question of whether Mrs.
Sympson has established that she neither knew nor had reason to
know that the returns she signed contained a substantial
understatement of tax. Id.; sec. 6013(e)(1)(C).
Respondent agrees, and we so find, that Mrs. Sympson had no
actual knowledge of the embezzlement before her husband was
caught. Thus, the question is whether she had reason to know of
the understatements on the returns for tax years 1982 through
1986, and whether she had actual knowledge or reason to know for
tax year 1987.
In deciding whether Mrs. Sympson "had reason to know" of the
substantial understatements when she signed the returns, we take
into account: (1) her level of education; (2) her involvement in
the family's business and financial affairs; (3) the presence of
expenditures that appear lavish or unusual when compared with the
family's past levels of income, standard of living, and spending
pattern; and (4) the culpable spouse's evasiveness and deceit
concerning their finances. Friedman v. Commissioner, 53 F.3d
523, 531-532 (2d Cir. 1995) (citing Hayman v. Commissioner, 992
F.2d 1256, 1261 (2d Cir. 1993), affg. T.C. Memo. 1992-228), affg.
in part and revg. in part T.C. Memo. 1993-549. The foregoing
factors are considered "because, ordinarily, they predict what a
prudent person would realize regardless of the other spouse's
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