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Cir. 1989) (fn. ref. omitted), affg. T.C. Memo. 1988-63. The
test for constructive knowledge of an understatement is a
subjective one, focusing on the following factors: (1) The
spouse's level of education; (2) the spouse's involvement in the
business and financial affairs of the marriage and in the
transactions that gave rise to the understatement; (3) the
presence of expenditures that appear lavish or unusual when
compared to the taxpayers' accustomed standard of living and
spending patterns; and (4) the culpable spouse's evasiveness and
deceit concerning family finances. Edmondson v. Commissioner,
T.C. Memo. 1996-393.
Mrs. Garrett has presented no evidence as to any of these
factors. In contrast, Mr. Garrett testified that Mrs. Garrett
was aware of his muscle car collection and that he did not hide
any assets or transactions from her. Accordingly, we find that
Mrs. Garrett failed to demonstrate that she neither knew, nor had
reason to know, about the substantial understatements at the time
petitioners' returns were signed.
Mrs. Garrett has not satisfied her burden of proof with
respect to two essential elements. Therefore, she does not
qualify as an innocent spouse within the meaning of section
6013(e).
Issue Five: Accuracy-Related Penalties
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