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possessed actual knowledge of the transaction giving rise to the
understatement. Petitioner assisted Ms. Morrison in applying and
reapplying for benefits for over 2 years. Petitioner’s trial
testimony indicates that he knew that Ms. Morrison was receiving
monthly benefits during 1996 and that she used those benefits to
pay the mortgage on their residence. The record further reflects
that petitioner knew that Ms. Morrison received a lump-sum
benefit separate from her monthly benefits and used $2,500 of the
proceeds to pay her divorce attorney. Petitioner’s presence when
Ms. Morrison presented her benefit statement to the tax return
preparer also supports the conclusion that he knew Ms. Morrison
received a benefit award. Because petitioner knew of the
transaction underlying the understatement, we hold that he had
knowledge of the substantial understatement.
B. Would It Be Inequitable To Hold Petitioner Liable for
the Tax Liabilities?
Whether it is inequitable to hold a spouse liable for a
deficiency is to be determined by taking into account all of the
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 on the part of the other spouse.” Jonson v.
Commissioner, 118 T.C. at 119 (citing Hayman v. Commissioner, 992
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