Wendlyn H. Albin - Page 8

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          return could have been expected to know that the return contained           
          the understatement.7  Price v. Commissioner, 887 F.2d 959, 965              
          (9th Cir. 1989).8  Whether such a taxpayer has reason to know of            
          an understatement is a subjective test that rests on factors such           
          as the taxpayer’s level of education, the taxpayer’s involvement            
          in the family’s business and financial affairs, the evasiveness             
          or deceit of the taxpayer’s spouse as to the couple’s finances,             
          and the presence of any unusual or lavish expenditures                      
          inconsistent with the couple’s past levels of income, standard of           
          living, and spending patterns.  Id.  The court in Price also                
          stated that this “reason to know” requirement may impose on the             
          requesting spouse a “duty of inquiry” that would put that spouse            
          on notice that an understatement exists.  Id.  The test for                 
          whether this duty of inquiry requirement applies is the same                
          subjective test that is used to determine whether the requesting            
          spouse had reason to know of the understatement; i.e., in an                
          erroneous deduction setting, whether a reasonably prudent                   
          taxpayer in the position of the requesting spouse would be led to           


               7 Respondent makes no claim that petitioner actually knew              
          about the understatement or the shelter and deductions related              
          thereto.                                                                    
               8 Although the knowledge requirement in Price v.                       
          Commissioner, 887 F.2d 959, 965 (9th Cir. 1989), was that of                
          former sec. 6013(e)(1)(E), we have held that interpretations of             
          the former provision are instructive to our interpretation of the           
          knowledge requirement of sec. 6015(b)(1)(C).  Butler v.                     
          Commissioner, 114 T.C. 276, 283 (2000).                                     





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