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understatements and that it would not be inequitable to hold her
liable for the deficiencies attributable to those
understatements. Petitioner disagrees.
Section 6013(e)(1)(C)
In resolving whether petitioner had reason to know that the
returns she signed for the years at issue contained substantial
understatements within the meaning of section 6013(e)(1)(C), the
Court must inquire whether a reasonably prudent person, under the
circumstances of petitioner, could have been expected to know at
the time of signing each return that each such return contained a
substantial understatement or that further investigation was
warranted. Bliss v. Commissioner, 59 F.3d 374, 378 (2d Cir.
1995), affg. T.C. Memo. 1993-390; Park v. Commissioner, supra at
1293 (citing Sanders v. United States, supra at 166-167 and n.5);
Bokum v. Commissioner, supra at 148. The relevant knowledge is
of the transaction giving rise to the income omitted from the
return, rather than of the tax consequences of such transaction.
Quinn v. Commissioner, 524 F.2d 617, 626 (7th Cir. 1975), affg.
62 T.C. 223 (1974). Consequently, a spouse who has reason to
know of such a transaction does not qualify for relief as an
"innocent spouse". Park v. Commissioner, supra; Sanders v.
United States, supra. Additionally, a spouse may have a duty to
inquire further if he or she knows enough facts so as to be
placed on notice of the possibility of a substantial
understatement. Guth v. Commissioner, 897 F.2d 441, 444-445 (9th
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