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details underlying the writedowns. A taxpayer who signs a return
is deemed to have constructive knowledge of its contents, even if
the taxpayer did not read the return. See id. (citing Schmidt v.
United States, 5 Cl. Ct. 24, 27 (1984)).
Considering the relevant factors, a reasonably prudent
person in petitioner’s position at the time she signed the return
would be expected to know that the return contained the potential
for a substantial understatement. In addition, because
petitioner was fully aware of the facts underlying the
transaction which gave rise to the substantial understatement,
petitioner’s defense is based exclusively on her ignorance of the
law. Accordingly, we hold that petitioner had knowledge or
reason to know of the substantial understatement.
III. Would It Be Inequitable To Hold Petitioner Liable for the
Tax Liabilities?
Although our holding that petitioner had reason to know is
fatal to her claim for relief, we note that it is not inequitable
to deny her relief in this case. Whether it is inequitable to
hold a spouse liable for a deficiency is to be determined by
taking into account all of the underlying facts and
circumstances. Sec. 6015(b)(1)(D). Two material factors most
often considered are: “(1) whether there has been a significant
benefit to the spouse claiming relief, and (2) whether the
failure to report the correct tax liability on the joint return
results from concealment, overreaching, or any other wrongdoing
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