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Commissioner, 74 F.3d 1528, 1537 (7th Cir. 1996) (quoting
Friedman v. Commissioner, 53 F.3d 523, 525 (2d Cir. 1995), affg.
in part and revg. in part T.C. Memo. 1993-549), revg. and
remanding T.C. Memo. 1994-241. Therefore, petitioner had no
reason to suspect that the losses associated with the London
straddle were fictitious.
Respondent argues that petitioner had a duty to inquire.
First, respondent implies that the large deduction on the return
should have caused petitioner to inquire as to the source of the
deduction. Citing Hayman v. Commissioner, 992 F.2d 1256, 1262
(2d Cir. 1993), affg. T.C. Memo. 1992-228, respondent asserts
that “it is well established that a spouse cannot be relieved of
liability by turning a blind eye to dramatically large deductions
fully disclosed on the returns which would put the spouse on
notice that further inquiry would be needed.”
In the Court of Appeals for the Eighth Circuit, the court to
which this case is appealable, the presence of large deductions,
standing alone, is not sufficient to trigger a duty of inquiry;
it is a factor that may be considered in the totality of the
circumstances.4 See Erdahl v. Commissioner, 930 F.2d at 591.
Therefore, we may not impose a duty to inquire based solely on
4We are bound by the Court of Appeals for the Eighth
Circuit’s view because of the Golsen rule. See Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971).
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