David R. Braden and Sharon F. Braden - Page 13




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          Memo. 1988-63; Winnett v. Commissioner, 96 T.C. 802, 812 (1991);            
          Bokum v. Commissioner, supra at 138; Flynn v. Commissioner, 93              
          T.C. 355 (1989); Terzian v. Commissioner, 72 T.C. 1164 (1979).              
          Factors to consider in analyzing whether a taxpayer seeking                 
          relief from joint and several liability had reason to know of the           
          understatement include:  (1) The taxpayer’s level of education;             
          (2) the taxpayer’s involvement in the family’s business and                 
          financial affairs; (3) the presence of expenditures that appear             
          lavish or unusual when compared to the family’s past levels of              
          income, standard of living, and spending patterns; and (4) the              
          culpable spouse’s evasiveness and deceit concerning the couple’s            
          finances.  See Price v. Commissioner, supra at 965 (citing                  
          Stevens v. Commissioner, supra at 1505); Varney v. Commissioner,            
          T.C. Memo. 1991-14.  “The question we must ask is whether                   
          petitioner’s active and knowledgeable participation in the                  
          subject transaction(s) rose to a level where he * * * had reason            
          to know of the * * * understatement.”  Pulliam v. Commissioner,             
          T.C. Memo. 1994-609.                                                        
               Applying the factors used to determine whether a taxpayer              
          had reason to know of the understatement confirms that petitioner           
          did not have constructive knowledge of the underlying transaction           
          or of the understatement resulting from the transaction.  There             
          is nothing in the record to support a conclusion that petitioner,           
          a high school graduate with 3 years of college education, had any           






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