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standard of living or spending habits would have alerted her to
the fact that her and her husband’s tax obligations were not
being accurately reported.
2. Facts Supporting a Finding That Petitioner Possessed
Constructive Knowledge of Understatement
While certain considerations in this case support a finding
that petitioner lacked constructive knowledge of the
understatement, others support a contrary conclusion. Petitioner
is not unsophisticated in financial matters. She is an educated
woman, and her studies included a course in financial accounting.
Petitioner worked for a number of years prior to her marriage,
presumably receiving paychecks, paying bills, and filing income
tax returns. Furthermore, during the tax years at issue,
petitioner ran her own sole proprietorship. Although not a large
enterprise, petitioner’s experience was certainly sufficient to
provide her an understanding of what it meant for a business to
incur a profit or a loss. With respect to her business,
petitioner prepared the tax information necessary to be included
on the tax return.
3. Duty of Inquiry
The facts supporting a conclusion that petitioner possessed
constructive knowledge of the understatement become increasingly
persuasive in light of the information that was included on the
tax returns which petitioner executed. Although petitioner did
not review the returns prior to signing them, she is charged with
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