- 8 -
to know if "a reasonably prudent taxpayer under the circumstances
of the alleged innocent spouse at the time of signing the return
could be expected to know that the tax liability stated was
erroneous or that further investigation was warranted." Park v.
Commissioner, supra at 1293. Factors relevant to such a
determination include the spouse's level of education, the
spouse's involvement in the family's business and financial
affairs, unusual or lavish expenditures made by the family, and
the "culpable" spouse's refusal to be forthright about the
family's income. Id.; Sanders v. United States, 509 F.2d 162,
166-167 (5th Cir. 1975).
Petitioners on their 1989 return failed to report $22,715 in
income from Ronnie's law practice. In 1989, petitioners reported
$24,782 of earnings attributable to Linda, $54,036.16 of self-
employment income attributable to Ronnie, and $43,323.81 of
taxable income. Although Linda did not review the return, she is
charged with constructive knowledge of its contents. Park v.
Commissioner, supra at 1299; Bokum v. Commissioner, supra at 148.
Even with such knowledge, it would have been reasonable for her
to believe that the income reported was sufficient to support
petitioners' lifestyle. In addition, Linda did not live with
Ronnie during 1989, was not involved in his law practice during
that year, did not see the records Ronnie maintained for the
practice, and had a separate checking account. Accordingly, we
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011