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items. As more fully explained infra, we conclude that peti-
tioner has successfully demonstrated that she is entitled to
innocent spouse relief with respect to this item.
First, the facts in the record amply demonstrate that the
omission is attributable solely to Thomas Dillon. Mr. Dillon
handled the Dillon family finances and maintained all the records
in the offices at Dillon Securities. It is Mr. Dillon who
possessed the knowledge and information necessary to complete the
return, and the record is clear that Mr. Dillon alone was
responsible for working with the accountants in preparing the
return. Accordingly, the failure to include income from this
account can be attributed solely to him.
Second, petitioner did not have actual or constructive
knowledge of the substantial understatement of tax. In cases
involving the omission of income, actual or constructive
knowledge of the underlying transaction giving rise to omitted
income is sufficient to preclude innocent spouse relief. Wiksell
v. Commissioner, 90 F.3d 1459 (9th Cir. 1996), revg. and remand-
ing T.C. Memo. 1994-99; Price v. Commissioner, T.C. Memo. 1987-
360.
Petitioner argues that she did not have actual or construc-
tive knowledge of the Murphy Favre account. Petitioner points to
the fact that all of the family finances were handled by Thomas
Dillon or employees of Dillon Securities, and all account state-
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