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know of the substantial understatements of tax. Sec.
6013(e)(1)(C).
In Stevens v. Commissioner, 872 F.2d 1499, the Court of
Appeals for the Eleventh Circuit, in refusing to grant innocent
spouse relief, approved our application of its "reason to know"
standard. The Court of Appeals stated that the "reason to know"
standard is based on 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". Id. at
1505; see also Sanders v. United States, 509 F.2d 162 (5th Cir.
1975). The test establishes a "duty of inquiry" on the part of
the alleged innocent spouse. Stevens v. Commissioner, supra. As
pointed out in Mysse v. Commissioner, 57 T.C. 680, 699 (1972), a
spouse cannot close her eyes to facts that might give her reason
to know of unreported income. Furthermore, the alleged innocent
spouse's role as homemaker and complete deference to the
husband's judgment concerning the couple's finances, standing
alone, are insufficient to establish that a spouse had no "reason
to know". Stevens v. Commissioner, supra at 1506.
In deciding whether petitioner had "reason to know" of the
substantial understatements when she signed the returns, we take
into account: (1) Her level of education; (2) her involvement in
the family's business and financial affairs; (3) the presence of
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