Maurice D. and Elinor Taylor - Page 24

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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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