Betsy O. Muhn - Page 7

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          A joint income tax return was filed; (2) the return contained a             
          substantial understatement of tax attributable to grossly erroneous         
          items of the other spouse; (3) in signing the return, the spouse            
          seeking relief did not know, and had no reason to know, of the              
          substantial understatement; and (4) under the circumstances it              
          would be inequitable to hold the spouse seeking relief liable for           
          the understatement.  Sec. 6013(e).  The spouse seeking relief bears         
          the burden of proving that each of the four statutory requirements          
          has been satisfied, and the failure to satisfy any one of the               
          requirements will prevent innocent spouse relief.  Bokum v.                 
          Commissioner, 94 T.C. 126, 138-139 (1990), affd. 992 F.2d 1132              
          (11th Cir. 1993).                                                           
               Respondent concedes that the first two statutory requirements          
          for innocent spouse relief have been satisfied.  Respondent                 
          contends, however, that petitioner knew or should have known of the         
          unreported income from petitioner's employment with the Ruidoso             
          Valley Chamber of Commerce and the net income from PFA, and that it         
          would not be inequitable to hold petitioner liable for the                  
          deficiency and additions.                                                   
          1.  Knowledge of Understatement                                             
               To establish lack of knowledge of the understatement,                  
          petitioner must show that she was unaware of the circumstances              
          giving rise to the omission of income.    See Purcell v.                    
          Commissioner, 86 T.C. 228, 238 (1986), affd. 826 F.2d 470 (6th Cir.         





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