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with regard to granting innocent spouse relief. See, e.g.,
Stiteler v. Commissioner, T.C. Memo. 1995-279, affd. without
published opinion 108 F.3d 339 (9th Cir. 1997); Foley v.
Commissioner, T.C. Memo. 1995-16; Buchine v. Commissioner, T.C.
Memo. 1992-36, affd. 20 F.3d 173 (5th Cir. 1994); Henninger v.
Commissioner, T.C. Memo. 1991-574; Knapp v. Commissioner, T.C.
Memo. 1988-109. The degree to which Mr. Garrett's promise
influences the inequity of holding Mrs. Garrett liable depends
upon whether his promise is reliable or speculative. Stiteler v.
Commissioner, supra. Mrs. Garrett has not demonstrated that Mr.
Garrett would not honor his obligation to pay the underlying tax
deficiencies for the years in issue. Furthermore, the indemnity
agreement provides for a lien against Mr. Garrett's muscle car
collection until such time as the Federal income tax liability
has been fully discharged and released.11
In addition to demonstrating that it would be inequitable to
hold her liable for any deficiency, Mrs. Garrett must also show
that she had no reason to know of the understatement. As to
having reason to know, the standard is whether "a reasonably
prudent taxpayer under the circumstances of the 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." Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th
11Mr. Garrett testified that, at the time of trial, he has
over $3 million invested in a total of 64 muscle cars.
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