- 8 -
1987). She must further show that she lacked both actual and
constructive knowledge of the omission such that a reasonable
person could not be expected to know that the tax liability stated
was erroneous or that further inquiry was necessary. See Stevens
v. Commissioner, 872 F.2d 1499, 1504-1505 (11th Cir. 1989), affg.
T.C. Memo. 1988-63.
Whether the spouse seeking relief had reason to know of the
substantial understatement is a question of fact to be determined
after reviewing the entire record. Guth v. Commissioner, 897 F.2d
441 (9th Cir. 1990), affg. T.C. Memo. 1987-522.
a. Mr. Muhn's Chamber of Commerce Income
Petitioner asserts that she was unaware that Mr. Muhn's income
as a bookkeeper with the Ruidoso Valley Chamber of Commerce was not
reported on their joint Federal income tax return. She claims that
she did not review the return and that the paychecks made payable
to PFA went into a checking account used only for preauthorized
withdrawals. As such, petitioner contends, she "could not be
expected to unravel the financial web strung by her accountant
husband".
Although petitioner may not have been aware of the amount of
compensation received by Mr. Muhn from the Ruidoso Valley Chamber
of Commerce or where those amounts were going, she certainly was
aware that Mr. Muhn was employed there and earned income. Even a
cursory examination of the 1991 tax return would have alerted
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