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substantial understatement. Factors to consider in
analyzing whether the alleged innocent spouse had
"reason to know" of the substantial understatement
include: (1) the spouse's level of education; (2) the
spouse'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. [Citations omitted.]
(2) Discussion
(a) Education
Barbara was highly educated, with a master’s degree relating
to education, her chosen professional field.
(b) Involvement in Financial Affairs
Barbara was peripherally involved in David’s consulting
business; she kept him advised of collections and reminded him to
pursue delinquent accounts. She had full responsibility for
writing the checks for household bills, reviewing the bank
statements, and balancing the family checkbook. She controlled
the investment of her own retirement savings. She was a
coinvestor with David in a real estate limited partnership, and
she was a coowner with him of an apartment building, which
building they sold, at least in part, on the basis of her advice
to David that the investment was unprofitable. She was shown the
documents relating to the investment in Vulcan and understood
that it would result in substantial tax savings. She was also
aware of the large deductions taken on the returns for the audit
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