- 14 - A spouse has reason to know of an understatement “if a reasonably prudent taxpayer in * * * her position, at the time * * * she signed the return, could be expected to know that the return contained an understatement or that further investigation was warranted. * * * The spouse seeking relief has a ‘duty of inquiry’.” Butler v. Commissioner, 114 T.C. 276, 283-284 (2000) (citations omitted). In deciding whether a spouse had reason to know of an understatement, a key factor is the extent to which family expenditures, of which the spouse had knowledge, exceeded reported income. See Estate of Jackson v. Commissioner, 72 T.C. 356, 361 (1979); Hammond v. Commissioner, T.C. Memo. 1990-22, affd. 938 F.2d 185 (8th Cir. 1991).8 Other relevant factors include the spouse’s education level; her involvement in the family’s business and financial affairs; the presence of lavish or unusual expenditures as compared to the family’s past income levels, income standards, and spending patterns; and the culpable spouse’s evasiveness and deceit concerning the couple’s finances. See Butler v. Commissioner, supra at 284. Although petitioner did not review the joint returns before signing them, she is charged with knowledge of their contents. 8 Cases interpreting former sec. 6013(e) “remain instructive as to our analysis of whether a taxpayer ‘knew or had reason to know’ of an understatement pursuant to new section 6015(b).” Butler v. Commissioner, 114 T.C. 276, 283 (2000).Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
Last modified: May 25, 2011