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Respondent asserts that a cursory review of the return would
have alerted petitioner to the erroneous loss deduction.
Respondent alleges that a casual glance by petitioner would have
revealed that the deductions substantially reduced gross income
to arrive at adjusted gross income. In addition, respondent
relies on the fact that petitioner knew the amount of her monthly
household expenditures, so that petitioner should have been aware
that "they were living tax free" in light of the differential
between those expenditures and the negative taxable income
reported on their returns for the years at issue. In light of
these factors, respondent contends that petitioner had a reason
to investigate.
Even if a spouse has no "reason to know" of the substantial
understatement, the spouse may know facts that put her "on
notice" of the understatement. Price v. Commissioner, 887 F.2d
at 965; Stevens v. Commissioner, 872 F.2d at 1505. With a duty
to inquire, the spouse seeking relief cannot turn a blind eye to
facts within his or her reach that would have put a reasonably
prudent taxpayer on notice to inquire further. McCoy v.
Commissioner, 57 T.C. 732, 734 (1972). Petitioner would not
qualify for section 6013(e) relief merely because she relied on
others, such as her husband or a tax preparer, to complete the
return properly. Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d
Cir. 1993), affg. T.C. Memo. 1992-228; Park v. Commissioner, T.C.
Memo. 1993-252, affd. 25 F.3d 1289 (5th Cir. 1994).
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