Patricia A. Hendricks and John J. Hendricks - Page 13

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          from Boulder Oil and Gas, because Mr. Hendricks did not bring any           
          of this mail home.                                                          
               Petitioner’s lack of knowledge regarding the transaction is            
          corroborated by the Hendrickses’ testimonies at trial.  Mr.                 
          Hendricks testified that he did not discuss business or financial           
          matters, including his investment in Boulder Oil and Gas, with              
          petitioner and that he did not consult petitioner when he decided           
          to make the investment.                                                     
               Having observed the Hendrickses’ appearances and demeanors             
          at trial, we find their testimonies to be honest, forthright, and           
          credible.  In view of their testimonies, we find that petitioner            
          did not have actual knowledge of Mr. Hendricks’s investment in              
          Boulder Oil and Gas at the time the joint 1983 tax return was               
               Section 6015(b)(1)(C) also requires that petitioner                    
          establish that she did not have reason to know that there was an            
          understatement.  Whether petitioner had reason to know of an                
          understatement is a question of fact which must be determined               
          based upon the entire record.  Guth v. Commissioner, 897 F.2d               
          441, 442 (9th Cir. 1990), affg. T.C. Memo. 1987-522; Terzian v.             
          Commissioner, 72 T.C. 1164, 1170-1172 (1979).  Petitioner had               
          reason to know of an understatement if a reasonably prudent                 
          taxpayer under her circumstances could be expected to know that             
          the tax liability stated was erroneous or that further                      

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