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claimed deductions such that a reasonably prudent person in
the taxpayer’s position would question seriously whether the
deductions were phony.”
Id. (quoting Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th
Cir. 1989), affg. T.C. Memo. 1988-63). Factors relevant in this
analysis include the taxpayer’s level of education, the
taxpayer’s involvement in her family’s financial activities, any
substantial unexplained increase in the family’s standard of
living, and evasiveness and deceit by the taxpayer’s spouse
concerning the family’s finances. Id.
Regardless of the standard used in analyzing whether a
taxpayer had reason to know of an understatement, it is well
settled that ignorance of the law is not a defense for a taxpayer
seeking section 6015 relief. Mitchell v. Commissioner, 292 F.3d
800, 803-806 (D.C. Cir. 2002), affg. T.C. Memo. 2000-332;
Cheshire v. Commissioner, 282 F.3d 326, 333-335 (5th Cir. 2002),
affg. 115 T.C. 183 (2000) (“Cheshire II”); Price v. Commissioner,
supra at 964. Where a taxpayer knows “virtually all of the facts
of the transaction underlying the deduction,” she is left with
“no option but to rely solely upon ignorance of law as a
defense”. Price v. Commissioner, supra at 964. Consequently,
regardless of whether the taxpayer “possesses knowledge of the
tax consequences of the item at issue, she is considered as a
matter of law to have reason to know of the substantial
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