- 6 - other personal expenses. By petitioner’s stipulation to be bound in Mr. Elias’s case, petitioner, in effect, conceded respondent’s determinations for and the reasons for the disallowance of such items as trade or business expenses. Although petitioner in this case did not challenge these determinations, her contention is that she did not know and had no reason to know that these items had been claimed as trade or business expenses on their joint return. Petitioner knew the personal nature of these underlying transactions giving rise to the deficiency. In Levy v. Commissioner, T.C. Memo. 2005-92, the Court held that the standard to be applied in such a situation is whether a reasonably prudent taxpayer under the circumstances of the spouse requesting relief at the time of signing the return could be expected to know that the tax liability on the return was erroneous or that further investigation was warranted. At trial, petitioner admitted that she had a college degree in business; consequently, the Court is satisfied that petitioner, based on her educational background as well as her own business experience, knew or should have known the nature of expenses that could or could not be deducted in determining the net income of an activity subject to an income tax on its net profits. Moreover, the Court notes that some of these expenses personally benefited petitioner; consequently, it would not be inequitable, in the Court’s view, to hold petitioner liable for the taxPage: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011