- 40 -
generally put a taxpayer on notice that there may be an
understatement of tax liability.” Hayman v. Commissioner, 992
F.2d 1256, 1262 (2d Cir. 1993), affg. T.C. Memo. 1992-228. The
court in Price v. Commissioner, supra at 966, likewise noted that
“the size of the deduction * * * viz-a-viz the total income
reported on the return * * *, when considered in light of the
fact that” the taxpayer knew of the investment and its nature, is
enough to put the taxpayer on notice that an understatement
exists and to result in a duty of inquiry. If the duty of
inquiry arises but is not satisfied by the taxpayer, constructive
knowledge of the understatement may be imputed to the taxpayer.
Id. at 965. Because petitioner did not ask any questions about
the Hoyt investment deduction and credits, which were large in
relation to the income reported by petitioner and Mr. Barnes and
nearly eliminated their Federal tax liability, petitioner did not
satisfy her duty to inquire. Accordingly, we conclude that a
reasonable person, faced with petitioner’s circumstances and in
petitioner’s position, would have had reason to know of the
understatements.
Finally, we note that, for the same reasons discussed below
in connection with respondent’s denial of section 6015(f) relief,
we conclude that the requirement of section 6015(b)(1)(D) has not
been met because it would not be inequitable, taking into account
Page: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: May 25, 2011