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With respect to petitioner’s knowledge of the underlying
transaction, which in this case was Mr. Heitzman’s purchase of
the Stonehurst interest in December 1979, petitioner knew of the
bare existence of the transaction, but little more. Both
Mr. Heitzman’s testimony and that of petitioner herself show that
he informed her of his purchase either shortly before it was made
or at some point thereafter, prior to the filing of the 1979
return.
In considering whether this bare knowledge of the
transaction is sufficient to hold petitioner to have had reason
to know of the understatement, we must consider several factors
used by this Court and others: (1) The putative innocent
spouse’s level of education; (2) her involvement in the family’s
financial affairs; (3) the putative guilty spouse’s evasiveness
or deceit concerning the family’s finances, and; (4) the presence
of lavish or unusual expenditures or any large unexplained
increase in the family’s standard of living. Flynn v.
Commissioner, 93 T.C. 355, 365-366 (1989); see also Silverman v.
Commissioner, T.C. Memo. 1996-69, revd. on other grounds 116 F.3d
172 (6th Cir. 1997).
Petitioner was a woman of limited education and no financial
sophistication who trusted Mr. Heitzman and deferred to him on
all business matters. Mr. Heitzman told petitioner that the
Stonehurst partnership was a tax shelter “in oil and gas” that
would make some money, facts that, to petitioner, were consistent
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