Eloise Gaddy Joens - Page 17

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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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