- 6 -
approach in cases involving erroneous deductions (versus cases
involving omission of income). Id. at 115-116. That court has
stated that a spouse is entitled to relief from joint liability
where she establishes “that she did not know and did not have
reason to know that the deduction would give rise to a
substantial understatement.” Resser v. Commissioner, 74 F.3d
1528, 1536 (7th Cir. 1996), revg. and remanding T.C. Memo. 1994-
241 (quoting Price v. Commissioner, 887 F.2d 959, 963 (9th Cir.
1989), revg. an Oral Opinion of this Court).4 The court went on
to state:
When evaluating whether the taxpayer had reason to know, the
circuits agree that a court must follow an objective
“reasonable taxpayer” standard: A spouse has “reason to
know” if a reasonably prudent person, under the
circumstances of the taxpayer claiming innocent spouse
relief, could be expected to know, at the time of signing
the return, that the tax return contained a substantial
understatement or that further investigation was warranted.
* * * “Hence, the court’s analysis must focus on whether the
spouse had sufficient knowledge of the facts underlying the
3(...continued)
holdings of the Court of Appeals to which an appeal of its
decision lies, see Golsen v. Commissioner, 54 T.C. 742 (1970),
affd. 445 F.2d 985 (10th Cir. 1971), even in cases subject to
sec. 7463(b).
4The court in Resser was interpreting former sec. 6013(e),
which was repealed and replaced with current sec. 6015 by the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3201, 112 Stat. 685, 734. Sec. 6015(b)
does not contain the requirement of former sec. 6013(e) that the
understatement be “substantial”. Despite this and other minor
differences between the two provisions, Resser and other cases
interpreting former sec. 6013(e) remain instructive in analyzing
cases under sec. 6015(b). Butler v. Commissioner, 114 T.C. 276,
283 (2000).
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