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With respect to taxable year 1991, we find that petitioner
has established that her former husband attempted to conceal the
"extent" of his embezzlement activities by misleading petitioner
when she inquired whether the $45,000 entry on their return
accounted for all of the couple's 1991 embezzlement income.
Having thoroughly examined the circumstances of the instant
case, we conclude that a reasonably prudent person would have
seriously questioned the gross income reported in the joint
return petitioner and her former husband filed for taxable year
1990. None of the four factors discussed above favors petitioner
with respect to taxable year 1990. We therefore conclude that
petitioner had a duty of inquiry with respect to the correctness
of the reported income and that she failed to discharge that
duty. See Park v. Commissioner, 25 F.3d at 1293; Sanders v.
United States, supra at 167. Accordingly, we find, based on the
entire record, that petitioner had reason to know of the
substantial understatement of tax on her 1990 return resulting
from the omission of the income embezzled by Mr. Peterson during
taxable year 1990.
With respect to taxable year 1991, our examination of the
circumstances of the instant case indicates, and we find
accordingly, that petitioner has failed to establish that she had
no reason to know of the substantial understatement of tax on her
1991 return resulting from the omission of the income embezzled
by Mr. Peterson during taxable year 1991. Of the four factors
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