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substantial understatements of tax. Sec. 6013(e)(1)(C). It does
not seem disputed that Mrs. Hemmings did not know of the
substantial understatements. Rather, the dispute focuses on
whether she had reason to know. In Kistner v. Commissioner, 18
F.3d 1521, 1525 (11th Cir. 1994), revg. T.C. Memo. 1991-463, the
Court of Appeals for the Eleventh Circuit, to which an appeal in
this case would lie, observed:
A spouse has "reason to know" if 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. * * * The
courts have recognized several factors that are
relevant in determining the "reason to know," including
(1) the alleged innocent spouse's level of education;
(2) the spouse's involvement in the family's business
and financial affairs; (3) the presence of expenditures
that appear lavish or unusual when compared to the
family's past levels of income, standard of income, and
spending patterns; and (4) the culpable spouse's
evasiveness and deceit concerning the couple's
finances. * * *
See also Friedman v. Commissioner, 53 F.3d 523 (2d Cir. 1995),
affg. in part and revg. and remanding in part T.C. Memo. 1993-
549; Jacoby v. Commissioner, T.C. Memo. 1996-477.
While Mrs. Hemmings does have a college education, there was
nothing in her education that would or should have alerted her to
the pitfalls of this situation. She was not educated in any
financial or business disciplines. There were no major
differences--before, during, or after the period in which these
deductions were claimed--in the Hemmingses' lifestyle. For
people with their wealth, their lifestyle was comfortable but not
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