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Mr. Barnes, and petitioner therefore is not entitled to relief
under section 6015(b). Sec. 6015(b)(1)(B). Nevertheless, we
briefly consider whether petitioner meets the requirements of
section 6015(b)(1)(C) and (D).
For purposes of section 6015(b)(1)(C), the relief-seeking
spouse knows of an understatement of tax if he or she knows of
the transaction that gave rise to the understatement. Jonson v.
Commissioner, 118 T.C. 106, 115 (2002), affd. 353 F.3d 1181 (10th
Cir. 2003). In general, the relief-seeking spouse has reason to
know of an understatement if he or she has reason to know of the
transaction that gave rise to the understatement. Id. While
courts consistently apply this “reason to know” standard to
omission of income cases, certain Courts of Appeals, including
the Court of Appeals for the Ninth Circuit, to which appeal lies
in this case, have adopted what has been labeled a more lenient
approach to deduction cases. Price v. Commissioner, 887 F.2d
959, 963 (9th Cir. 1989), revg. an Oral Opinion of this Court;
Jonson v. Commissioner, supra at 115.
In Price v. Commissioner, supra at 965, the Court of Appeals
for the Ninth Circuit stated:
A spouse has “reason to know” of the 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. Factors to consider in
analyzing whether the alleged innocent spouse had
“reason to know” of the substantial understatement
include: (1) the spouse’s level of education; (2) the
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