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The notice of deficiency states that $3,063 of personal
expenses were disallowed for 1990. Other than this, petitioner
has presented no proof that any of the disallowed expenses lacked
a legal basis. We hold that $3,063 of the disallowed expenses
for 1990 were grossly erroneous. The grossly erroneous items
attributable to Mr. Womack thus consist of the unreported income
and $3,063 of the disallowed business expenses.
Substantial Understatement
A substantial understatement is one that exceeds $500. Sec.
6013(e)(3). The amounts of the understatements related to the
grossly erroneous items of Mr. Womack for 1989 and 1990,
respectively, each exceed $500 and, therefore, are substantial.
Knowledge of the Understatement
A taxpayer seeking innocent spouse relief must establish
that he or she in signing the return did not know, and had no
reason to know, that there was a substantial understatement of
tax. Sec. 6013(e)(1)(C). A spouse has reason to know if a
reasonably prudent taxpayer under the taxpayer's circumstances at
the time of signing the return could be expected to know the
return was erroneous or that further investigation was warranted.
Stevens v. Commissioner, 872 F.2d at 1505; Bokum v. Commissioner,
94 T.C. at 148. The test establishes a duty of inquiry. Stevens
v. Commissioner, supra. If a spouse knows enough facts to be put
on notice of the possibility of a substantial understatement, she
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