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The duty to inquire may arise when the relief-seeking spouse has
notice that a particular deduction could result in a substantial
understatement. Id. The failure to inquire may result in the
constructive knowledge of the understatement. But, had the
relief-seeking spouse inquired about the underlying transaction
and been assured of its legitimacy, she need not repeat her
inquiry unless the return clearly has red flags. Id. at 590 n.7.
The factors considered in deciding whether the relief-seeking
spouse had a reason to know or a duty to inquire are: “‘the
spouse’s level of education, [her] involvement in family
financial affairs, the evasiveness or deceit of the culpable
spouse, and any unusual or lavish expenditures inconsistent with
the family’s ordinary standard of living.’” Id. at 591 (quoting
Guth v. Commissioner, 897 F.2d 441, 444 (9th Cir. 1990)).
i. Level of Education
Ms. McClelland graduated from high school in 1958. In 1959
she was trained as a flight attendant. She did not receive any
additional formal education.
ii. Involvement in Family Financial Affairs
Ms. McClelland’s involvement in petitioners’ family’s
financial affairs was limited. Having heard the testimony, we
believe Mr. McClelland wrote all checks paying their household
bills, and petitioners did not have a joint bank account during
the years in issue. Before each time Ms. McClelland shopped for
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Last modified: May 25, 2011