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generated by sales of Aegis trusts and related services. As
suggested by the preceding findings and discussion, the totality
of the record, while leaving much to be desired, indicates that
it was Mr. Richardson who engaged in the underlying selling
operations. Petitioners would thus seem to have a colorable
argument with respect to at least a portion of the
understatements being attributable to erroneous items of
Mr. Richardson. Nonetheless, it is unnecessary for the Court to
reach a definitive conclusion as to this requirement in light of
the conjunctive nature of the criteria and the following.
Section 6015(b)(1)(C) specifies that the requesting spouse
have had neither knowledge nor reason to know of the
understatement at the time the return was signed. A requesting
spouse is considered to have reason to know in this context if a
reasonably prudent taxpayer in his or her position, at the time
the return was signed, could be expected to know that the return
contained an understatement or that further investigation was
warranted. Butler v. Commissioner, supra at 283. Hence, the
spouse seeking relief may have a “duty of inquiry”. Id. at 284.
In applying the foregoing “reason to know” standard, factors
considered relevant include:
(1) The alleged innocent spouse’s level of education;
(2) the spouse’s involvement in the family’s business
and financial affairs; (3) the presence of expenditures
that appear lavish or unusual when compared to the
family’s past income levels, income standards, and
spending patterns; and (4) the culpable spouse’s
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