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consisted of IRA withdrawals and interest income. Petitioner
argues, in effect, that (1) he did not have actual knowledge of
the understatement and (2) he did not have sufficient knowledge
of the underlying transaction to give him reason to know of the
understatement.
We are satisfied from our review of the record in this case
that petitioner did not have actual knowledge of the
understatement, or of the transactions that produced the omitted
income giving rise to the understatement, when he prepared and
filed petitioners’ joint return for 1995. In fact, respondent
has not argued that petitioner knew of the understatement.
Respondent argues only that, because petitioner knew that Ms.
Braden had received the distributions as a result of her father’s
death, petitioner had knowledge of the transaction giving rise to
the understatement and, therefore, he knew or had reason to know
of the understatement within the meaning of section
6015(b)(1)(C). We reject respondent’s argument based on our
review of the facts and applicable law.
A taxpayer has reason to know of an understatement if a
reasonably prudent taxpayer in his position at the time he signed
the return could be expected to know that the return contained
the understatement. See Price v. Commissioner, 887 F.2d 959, 965
(9th Cir. 1989), revg. an Oral Opinion of this Court; Stevens v.
Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989), affg. T.C.
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