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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 elements of the statute
has been satisfied, and failure to satisfy any one of the elements
will prevent innocent spouse relief. Purcell v. Commissioner, 826
F.2d 470, 473 (6th Cir. 1987), affg. 86 T.C. 228 (1986); Bokum v.
Commissioner, 94 T.C. 126, 138-139 (1990), affd. 992 F.2d 1132
(11th Cir. 1993).
Respondent concedes that Mrs. Taylor has satisfied the first
two statutory requirements for innocent spouse relief.
Mrs. Taylor asserts that she did not know, nor had reason to
know, of the substantial understatement of income. To establish
this claim, Mrs. Taylor must prove that she was unaware of the
circumstances that gave rise to the omission of income. See
Purcell v. Commissioner, 86 T.C. at 238. She must demonstrate lack
of both actual and constructive knowledge of the omission such that
a reasonable person could not have been 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.
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