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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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