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we had three kids in college. We were desperate for some tax
relief to make ends meet.”
(d) Other Spouse’s Evasiveness and Deceit Regarding
Finances
David made clear during his trial testimony that Barbara was
aware of his investments, she had access to all of his files and
to his office, and he made no effort to deceive her with respect
to his financial affairs.
(3) Conclusion
All the foregoing factors support a finding that Barbara had
reason to know of the understatements. It is significant that
Barbara knew (1) of the investment in Vulcan, (2) that it was
designed to generate large deductions that, in turn, would result
in substantial tax savings, (3) that those deductions were taken
on the joint returns for the audit years, and (4) that there was
a risk that the deductions might be attacked by respondent and
disallowed on audit. “Tax returns setting forth large
deductions, such as tax shelter losses offsetting income from
other sources and substantially reducing * * * the couple’s tax
liability, generally put a taxpayer on notice that there may be
an understatement of tax liability.” Hayman v. Commissioner, 992
F.2d at 1262. See also Price v. Commissioner, 887 F.2d at 964,
where the Court of Appeals stated:
[I]f a spouse knows virtually all of the facts
pertaining to the transaction which underlies the
substantial understatement, her defense in essence is
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