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F.2d 959 (9th Cir. 1989). The Court of Appeals in Price adopted
the standard that a spouse has “reason to know” of a substantial
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 the substantial understatement.”6 Id. at
965.
Any appeal of our decision by petitioner would normally lie
with the Court of Appeals for the Second Circuit. The Court of
Appeals for the Second Circuit has adopted the Court of Appeals
for the Ninth Circuit’s “reason to know” standard for erroneous
deduction cases. See Hayman v. Commissioner, 992 F.2d 1256, 1261
(2d Cir. 1993), affg. T.C. Memo. 1992-228. Because the
underlying tax liability is based on erroneous deductions, we
apply the standard set forth in Price v. Commissioner, supra, and
adopted in Hayman v. Commissioner, supra at 1261. See Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971).
6 In omission of income cases courts consistently apply a
standard denying innocent spouse relief to taxpayers who have
reason to know of the transaction underlying the understatement
of tax. See Jonson v. Commissioner, 118 T.C. 106, 116 (2002).
Several Courts of Appeals, however, have adopted the standard of
Price v. Commissioner, 887 F.2d 959 (9th Cir. 1989), in erroneous
deduction cases. See Reser v. Commissioner, 112 F.3d 1258 (5th
Cir. 1997), affg. in part and revg. in part T.C. Memo. 1995-572;
Resser v. Commissioner, 74 F.3d 1528 (7th Cir. 1996), revg. T.C.
Memo. 1994-241; Kistner v. Commissioner, 18 F.3d 1521 (11th Cir.
1994), revg. and remanding T.C. Memo. 1991-463; Erdahl v.
Commissioner, 930 F.2d 585, 589 (8th Cir. 1991), revg. and
remanding T.C. Memo. 1990-101. But see Bokum v. Commissioner 94
T.C. 126, 151 (1990), affd. 992 F.2d 1132 (11th Cir. 1993).
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