Lota Womack - Page 18

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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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