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a. Section 6015(b)(1)(C): Know or Reason To Know
A spouse seeking relief under section 6015(b) must not have
known or had a reason to know at the time of signing a joint
return that there was an understatement of tax on the return.
Sec. 6015(b)(1). The general rule in an omission of income case
is the relief-seeking spouse knew or had reason to know of an
understatement of tax if she knew of the transaction that gave
rise to the understatement. Erdahl v. Commissioner, 930 F.2d
585, 589 (8th Cir. 1991), revg. and remanding T.C. Memo. 1990-
101; Jonson v. Commissioner, supra at 115. However, in deduction
cases, the Court of Appeals for the Eighth Circuit has adopted a
different standard, following Price v. Commissioner, 887 F.2d 959
(9th Cir. 1989), revg. an Oral Opinion of this Court. Erdahl v.
Commissioner, supra at 589.
Under this standard, a spouse has reason to know if “‘a
reasonably prudent taxpayer under the circumstances of the spouse
at the time of signing the return could be expected to know that
the tax liability stated was erroneous or that further
investigation was warranted.’” Id. at 590 (quoting Stevens v.
Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989)). The more
the relief-seeking spouse knows about a transaction, “‘the more
likely it is that she will know or have reason to know that the
deduction arising from that transaction may not be valid.’” Id.
at 598 n.6 (quoting Price v. Commissioner, supra at 963 n.9).
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Last modified: May 25, 2011