                         T.C. Memo. 1996-101



                       UNITED STATES TAX COURT



     ESTATE OF RAYMOND E. JONES, DECEASED, DOROTHY J. JONES,
    INDEPENDENT EXECUTRIX, AND DOROTHY J. JONES, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23835-88.                  Filed March 6, 1996.



     Sidney Levine, for petitioners.

      Melanie R. Urban, for respondent.


              MEMORANDUM FINDINGS OF FACT AND OPINION

      WELLS, Judge:   Respondent determined deficiencies in and

additions to petitioners Dorothy J. Jones and Raymond E. Jones'1

1

     Raymond E. Jones died during 1989, after the notice of
deficiency in the instant case was issued. The caption of the
instant case was amended to substitute the Estate of Raymond E.
Jones, Deceased, Dorothy J. Jones, Independent Executrix, for
Raymond E. Jones as a petitioner. For convenience, we will
hereinafter refer to petitioner Dorothy J. Jones as petitioner,
                                                   (continued...)
                                    - 2 -

Federal income taxes as follows:

                                   Additions to Tax
Year        Deficiency     Sec. 6653(a)(1)    Sec. 6653(a)(2)
                                                    1
1981        $40,352.17        $2,017.61
                                                    1
1982          1,118.92            55.95
       1
       50 percent of the interest due on the amount of the
deficiency.

           For the years in issue, respondent also determined that

petitioners are liable for increased interest under section

6621(c).        Unless otherwise indicated, all section references are

to the Internal Revenue Code in effect for the years in issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

           After concessions, the issues to be decided are:   (1)

Whether the period of limitation on assessment of the deficiency

in and additions to tax for the Joneses' 1981 taxable year

expired prior to the date the notice of deficiency was issued;

and, if it did not, (2) whether petitioner is entitled to relief

under section 6013(e) for the 1981 taxable year.

                              FINDINGS OF FACT

           Some of the facts were stipulated for trial pursuant to Rule

91.        The parties' stipulations are incorporated herein by

reference and are found accordingly.


1
 (...continued)
Raymond E. Jones as Mr. Jones, petitioner and Mr. Jones as the
Joneses, and petitioner and the Estate of Raymond E. Jones,
Dorothy J. Jones, Independent Executrix, as petitioners.
                               - 3 -

     At the time they filed the petition in the instant case, the

Joneses resided in Houston, Texas.

     Petitioner married Mr. Jones during 1967.   Petitioner and

Mr. Jones had both been married previously, and they both had

minor children from prior marriages at the time they married.

Petitioner had quit school at the age of 15.   Mr. Jones had only

an eighth grade education.   At the time the Joneses married, Mr.

Jones worked as a welder on a pipe-laying barge for Brown & Root,

an international construction company owned by Halliburton.

Until 1984, when he was terminated, Mr. Jones received regular

promotions from Brown & Root, eventually rising to the level of

vice president.

     Shortly after their marriage, the Joneses moved to Bahrain

for 6 months and then to England, where they lived for

approximately 8 years.   Petitioner returned to the United States

during 1977 with the children who still lived with them.    In

order to find a house, petitioner returned from England prior to

the time Mr. Jones returned.

     After the Joneses returned from England during 1977,

petitioner took full responsibility for paying the house and

family expenses because Mr. Jones traveled extensively.    As part

of her household responsibilities, petitioner wrote the checks

for the Joneses’ family expenses on a jointly held household

account at the Citizens State Bank in Sealy, Texas (the household
                                - 4 -

account).   Mr. Jones deposited his Brown & Root paychecks into

the household account.   Petitioner wrote all but 2 of 340 checks

drawn on the household account in 1981, paying the monthly and

regular household bills, as well as bills totaling $10,000 for

improvements to their home.

     After the Joneses returned from England during 1977,

petitioner also handled the family savings account, transferring

between the checking account and the savings account the

following amounts on the following dates:   $2,500 on April 25,

1981, $1,500 on May 13, 1981, and $1,500 on June 8, 1981.

     Petitioner opened most of the mail that came to their house,

except for Mr. Jones' important, personal mail.   As a result of

opening the mail, petitioner discovered things that caused her to

question Mr. Jones about his financial affairs.

     Two or three years after returning from England, petitioner

started a small dress shop in Sealy, Texas.   She opened the dress

shop without any prior experience in either retail sales or

keeping books.   After she opened the dress shop, petitioner hired

others to perform bookkeeping and accounting services because she

had no interest or expertise in bookkeeping or accounting and she

knew how important it was to keep receipts and other records for

that purpose.    Emma Rice, petitioner's daughter-in-law, did most

of the bookkeeping in the early years of the business, but

petitioner subsequently hired an accountant named Jack Singleton
                               - 5 -

to do the bookkeeping.   At that time, as Mr. Jones was also

looking for an accountant, petitioner recommended Mr. Singleton

to him.

     In her dress shop, petitioner had full responsibility for

buying the inventory and selling it, areas in which she had skill

and interest.   During 1980, the dress shop's first year,

petitioner grossed $78,207.   Petitioner acquired, on her own, the

dress shop's first (and continuing) inventory and opened on her

own a separate bank account for the dress shop at the Citizens

State Bank in Sealy, Texas.

     Mr. Jones did not write checks on petitioner's dress shop

bank account, and she did not keep him apprised of the operations

of the dress shop.   Occasionally, petitioner used the household

account for transactions involving the dress shop.

     During its first year, petitioner operated the dress shop in

leased space, but petitioner subsequently moved the shop to a

building she purchased in 1981 for $42,500.    The building

afforded a larger space and, during 1981, petitioner opened a

bridal shop in addition to the dress shop.    During 1981, the

dress and bridal shops employed three to four employees per day.

During 1981, the dress and bridal shops grossed $128,549.67,

almost double the first year's results, and reported a profit.

After opening the bridal shop, petitioner opened a third

business, a tea room that served lunch.
                               - 6 -

     Petitioner operated her businesses for approximately 9

years, working very long hours.   Mr. Jones took no responsibility

for the dress shop or other businesses petitioner undertook in

Sealy, Texas, and he had very little to do with them.    On the

other hand, Mr. Jones did not ignore petitioner's efforts, and he

helped her when she asked him for his assistance.

     Petitioner began noticing a difference in her relationship

with Mr. Jones about the time they returned from England and she

started her businesses (i.e., prior to 1981), when Mr. Jones

became more and more private, even secretive.    Nonetheless,

petitioner possessed information about many of Mr. Jones'

financial affairs.   During relevant times, she knew Mr. Jones was

buying stock in Halliburton, the parent company of Brown & Root,

because she saw the contemporaneous deductions taken out of his

paycheck.   Petitioner kept track of Mr. Jones' earnings from

Brown & Root.   She also knew that he had perfected certain

inventions while working for Brown & Root.    She knew that Mr.

Jones bought stock in the Citizens State Bank of Sealy.    She knew

how much she and Mr. Jones paid for the small house they acquired

in Sealy in 1974, which they used for summer vacations while they

were living in England, and she knew how it was financed.     She

knew about the 95 acres of land Mr. Jones purchased in 1971, how

much he paid for it, how it was used, how it was financed, and

how it came to be mortgaged again.     She knew about the 23 acres
                               - 7 -

of land Mr. Jones purchased in 1970 for cash.    She knew that Mr.

Jones purchased U.S. savings bonds through his paycheck during

the period 1972 to 1982.   She knew about a 5-acre tract of land

near Sealy that Mr. Jones sold in 1982, and how the buyer paid

for it.   She knew that Mr. Jones consulted with David Lye about

the purchase of a lumber yard in 1980 or 1981.   She knew that Mr.

Jones wanted to build a Holiday Inn in Sealy.

     After petitioner found and recommended Mr. Singleton to Mr.

Jones (during 1979 or 1980) and they met with him briefly, Mr.

Jones took responsibility for transmitting all pertinent

information to Mr. Singleton and seeing that their joint income

tax returns were prepared.   Mr. Singleton prepared the 1981 joint

income tax return filed by the Joneses.   Mr. Singleton found both

petitioners difficult to deal with when he needed information.

     The Joneses filed their joint income tax return for the

taxable year 1981 on August 23, 1982.   On their 1981 return, the

Joneses claimed deductions with respect to an investment in an

art tax shelter.

     In addition to the deductions claimed for the art tax

shelter, the Joneses claimed partnership losses from Auburn

Mining Joint Venture (related to Munro Shuman) (Auburn Mining

partnership) in the amount of $76,674 and Choate Square Joint

Venture (Choate Square partnership) in the amount of $11,798.92.

During 1981, Mr. Jones had invested $10,000 in the Auburn Mining
                                - 8 -

partnership using funds out of his expense account at Citizens

State Bank, in Sealy, Texas.    During 1981, petitioner did not

know that Mr. Jones maintained a separate bank account for his

business and travel expenses.    However, she knew that Mr. Jones'

employer, Brown & Root, paid for his travel by advancing him

funds, and that he did not deposit those funds into their

household account.    Nonetheless, petitioner did not know about

the $10,000 investment in the Auburn Mining partnership when Mr.

Jones made it.

     On their 1981 return, the Joneses claimed an overpayment of

$17,732.28, resulting at least in part from the deductions taken

from the Auburn Mining and Choate Square partnerships.    The 1981

return, with its overpayment claim, contrasted with their 1979

and 1980 returns, which respectively reported an overpayment of

only $33 and an amount due of $1,444.    A substantial portion of

the refund claimed on the 1981 return was carried over to be used

as an additional payment on the income tax liability shown on the

joint return filed by the Joneses for their 1982 taxable year.

     Petitioner signed the returns filed for taxable years 1979

and 1980, as well as the return filed for the 1981 taxable year.

Although she signed the tax returns, petitioner did not see the

complete returns or inspect each of the pages given to her

because Mr. Jones always presented them for signature at

inconvenient times.    Petitioner did not inspect the portions of
                                 - 9 -

the tax returns Mr. Jones gave her to sign during 1981 because,

at that time, she trusted him.

     Upon audit of the Joneses’ 1981 return, the Internal Revenue

Service (Service) proposed disallowing the Schedule C loss

claimed by the Joneses with respect to the art tax shelter and

allowing only their cash outlay as a deduction.    On August 20,

1984, the Joneses agreed to the assessment of additional tax for

1981 resulting from disallowance of the Schedule C loss with

respect to the art tax shelter by signing Form 1902-B, Report of

Individual Income Tax Examination Changes.    The Joneses made an

advance payment of $610.52 on the art tax shelter adjustment on

August 22, 1984, that covered the additional tax as originally

proposed plus interest.   On September 29, 1984, and March 1,

1985, respectively, the Joneses and a representative of the

Service also executed a Closing Agreement on Final Determination

Covering Specific Matters concerning only the art tax shelter for

which the Joneses had claimed deductions for 1980, 1981, and

1982.

     On April 25, 1985, the Joneses and a representative of the

Service executed a Form 872-A, Special Consent to Extend the Time

to Assess Tax, extending the period of limitation for assessment

with respect to their 1981 year.    The Form 872-A provided that

the Service could assess additional tax with respect to the 1981

taxable year at any time subject only to certain limitations.
                              - 10 -

The relevant portions of the Form 872-A stated as follows:

     (1) The amount(s) of any Federal income tax due on any
     return(s) made by or for the above taxpayer(s) for the
     period(s) ended December 31, 1981 may be assessed on or
     before the 90th (ninetieth) day after: (a) the Internal
     Revenue Service office considering the case receives Form
     872-T, Notice of Termination of Special Consent to Extend
     the Time to Assess Tax, from the taxpayer(s); or (b) the
     Internal Revenue Service mails Form 872-T to the
     taxpayer(s); or (c) the Internal Revenue Service mails a
     notice of deficiency for such period(s)* * *

     (2) This agreement ends on the earlier of the above
     expiration date or the assessment date of an increase in the
     above tax that reflects the final determination of tax and
     the final administrative appeals consideration. An
     assessment for one period covered by this agreement will not
     end this agreement for any other period it covers. Some
     assessments do not reflect a final determination and appeals
     consideration and therefore will not terminate the agreement
     before the expiration date. Examples are assessments of:
     (a) tax under a partial agreement; (b) tax in jeopardy; (c)
     tax to correct mathematical or clerical errors; (d) tax
     reported on amended returns; and (e) advance payments.

     On June 17, 1985, the Service assessed the additional tax

owed with respect to the art tax shelter adjustments for the 1981

year.   On April 13, 1988, the Service received from the Joneses a

Form 872-T, terminating the consent granted by the Form 872-A for

the 1981 taxable year.   On June 21, 1988, within 90 days of its

receipt of the Form 872-T, the Service issued to the Joneses a

statutory notice of deficiency covering both the 1981 and 1982

taxable years.

                              OPINION

     The first issue we must decide is whether the period of

limitation on assessment of the deficiency in and additions to
                               - 11 -

tax against the Joneses for their 1981 taxable year had expired

prior to the date the notice of deficiency was issued.

     Generally, the Commissioner must assess any deficiency

within 3 years of the filing of a return.    Sec. 6501(c).   A

taxpayer and the Commissioner can agree to extend the assessment

deadline if they memorialize their agreement in writing prior to

the expiration of the original assessment period.    Sec.

6501(c)(4).    The agreement terminates only by the methods set out

on its face.    Kernen v. Commissioner, 902 F.2d 17, 18 (9th Cir.

1990); Estate of Camara v. Commissioner, 91 T.C. 957, 962 (1988).

     The bar of the statutory period of limitation is an

affirmative defense which must be specifically pled and proved.

Rules 39, 142(a); Mecom v. Commissioner, 101 T.C. 374, 382

(1993), affd. without published opinion 40 F.3d 385 (5th Cir.

1994); Amesbury Apartments, Ltd. v. Commissioner, 95 T.C. 227,

240 (1990).    Petitioners may establish a prima facie case by

proving the filing date of their 1981 tax return and that the

notice of deficiency was mailed after the normal 3-year

expiration date for the period of limitation.    Mecom v.

Commissioner, supra at 382; Amesbury Apartments, Ltd. v.

Commissioner, supra at 240-241; Adler v. Commissioner, 85 T.C.

535, 540 (1985).    The burden of going forward then shifts to

respondent.    J.H. Rutter Rex Manufacturing Co. v. Commissioner,

853 F.2d 1275, 1281 (5th Cir. 1988), affg. in part, revg. in part
                              - 12 -

and remanding T.C. Memo. 1987-296; Armes v. Commissioner, 448

F.2d 972, 974 (5th Cir. 1971), affg. in part, revg. in part and

remanding T.C. Memo. 1969-181; Mecom v. Commissioner, supra at

382; Adler v. Commissioner, supra at 540-541.

     Respondent’s burden is met by the receipt into evidence of

one or more properly executed, facially valid, written agreements

extending the period of limitation on assessment along with

evidence that the notice of deficiency was mailed prior to the

end of the extended period.   J.H. Rutter Rex Manufacturing Co. v.

Commissioner, supra at 1281; Mecom v. Commissioner, supra at 382-

383; Adler v. Commissioner, supra at 540.   Once respondent makes

such a showing, the burden of going forward with the evidence

shifts back to petitioners to prove their contentions with

respect to agreements.   J.H. Rutter Rex Manufacturing Co. v.

Commissioner, supra at 1281; Mecom v. Commissioner, supra at 383;

Adler v. Commissioner, supra at 541.

     An agreement extending the period of limitation on

assessment is a unilateral waiver of a defense by a taxpayer; the

interpretation of the terms contained in the agreement is

governed by contract principles.   Stange v. United States, 282

U.S. 270 (1931); Kronish v. Commissioner, 90 T.C. 684, 693

(1988); Piarulle v. Commissioner, 80 T.C. 1035, 1042 (1983).     The

terms of the parties’ agreement are determined from their

objective manifestations of mutual assent as shown by their overt
                                - 13 -

acts.    Mecom v. Commissioner, supra at 384-385.   In signing a

written agreement, the parties manifest assent to its provisions.

Id. at 385.    To construe the terms of the parties’ agreement,

therefore, we look to the language of the written agreement.        Id.

at 384, 385; Kronish v. Commissioner, supra at 693.2    Only if a

written agreement is ambiguous do we look behind it to ascertain

the intentions of the parties.     Rink v. Commissioner, 100 T.C.

319, 325 (1993), affd. 47 F.3d 168 (6th Cir. 1995).    A written

agreement is ambiguous if it can reasonably be interpreted to

have more than one meaning.     Woods v. Commissioner, 92 T.C. 776,

780 (1989).     If the written agreement is ambiguous, the finder of

fact may resort to extrinsic facts to interpret the parties'

intent in signing the agreement.     Id.

     With the foregoing in mind, we look to the words the parties

to the agreement used to memorialize their agreement.       The

Joneses and the Service’s agent signed Form 872-A, which

contained the following language relating to termination of the

agreement:

     (1) The amount(s) of any federal income tax due on any
     return(s) made by or for the above taxpayer(s) for the
     period(s) ended December 31, 1981 may be assessed on or
     before the 90th (ninetieth) day after: (a) the Internal
     Revenue Service office considering the case receives Form
     872-T, Notice of Termination of Special Consent to Extend
     the Time to Assess Tax, from the taxpayer(s); or (b) the
     Internal Revenue Service mails Form 872-T to the
     taxpayer(s); or (c) the Internal Revenue Service mails a

2

        See Masraff v. Commissioner, T.C. Memo. 1989-638.
                              - 14 -

     notice of deficiency for such period(s). * * *

     (2) This agreement ends on the earlier of the above
     expiration date or the assessment date of an increase
     in the above tax that reflects the final determination
     of tax and the final administrative appeals
     consideration. An assessment for one period covered by
     this agreement will not end this agreement for any
     other period it covers. Some assessments do not
     reflect a final determination and appeals consideration
     and therefore will not terminate the agreement before
     the expiration date. Examples are assessments of: (a)
     tax under a partial agreement; (b) tax in jeopardy; (c)
     tax to correct mathematical or clerical errors; (d) tax
     reported on amended returns; and (e) advance payments.

     Petitioners argue that the language of the Form 872-A is

clear and that the assessment made with respect to the art tax

shelter adjustment falls within the language of paragraph (2),

thereby terminating the extension on June 17, 1985, the date of

the assessment.   Accordingly, we must decide the meaning of "the

assessment date of an increase in * * * tax that reflects the

final determination of tax and the final administrative appeals

consideration."   As the record establishes that a facially valid,

written consent was properly executed, the burden of going

forward shifts back to petitioners to prove that the consent

terminated in accordance with its terms.

     The record contains no evidence of Appeals Office

involvement in the art shelter matter.   Accordingly, petitioners

rely solely on the Service’s assessment of tax concerning the art

shelter adjustment as "the final determination of tax" thereby

terminating the extension provided in the Form 872-A.

Petitioners contend that any assessment of tax for the 1981 year
                                - 15 -

is what is meant by the term “tax” in the phrase “the final

determination of tax”.     Respondent, on the other hand, argues

that only a closing agreement covering all adjustments or issues

for an entire year can finalize a taxpayer’s liability for that

year.     Respondent’s argument presumes that the phrase “the final

determination of tax” means the final determination of the

taxpayer’s tax for the entire year.

     We agree with respondent that the words used in the

agreement evince an intent that only a final determination of the

Joneses’ tax for the entire period covered by the agreement would

terminate the agreement.     Paragraph (2) of the agreement states

that “Some assessments do not reflect a final determination” and

then sets forth some examples, including the assessment of “tax

under a partial agreement” and the assessment of "advance

payments".     We interpret the closing agreement with respect to

the art tax shelter to be a partial agreement, in that the

closing agreement did not purport to cover the Joneses’ entire

1981 taxable year.     The closing agreement was limited only to the

art tax shelter adjustment.     Consequently, the assessment of tax

with respect to the art tax shelter adjustment was not a final

determination of tax as called for in the Form 872-A.     See

Drummond Co. v. United States, 70 AFTR 2d 92-5185, 92-2 USTC par.

50,339, (N.D. Ala. 1992).

        Even were we to conclude that the words used in the Form

872-A are susceptible of more than one meaning and, therefore,
                              - 16 -

that we must resort to extrinsic facts to interpret the parties’

intent, we would reject petitioners’ interpretation because it is

inconsistent with the very purpose that the parties must have had

in mind when they executed the Form 872-A.    The Joneses signed

the closing agreement with respect to the art tax shelter in

September 1984, and the Service approved it in March 1985.    The

Form 872-A was signed by the Joneses on April 1, 1985, and the

Service signed it on April 25, 1985.   The obvious purpose for

signing a Form 872-A is to extend the period during which the

Service is permitted to send a notice of deficiency to the

taxpayer.   However, the Joneses had already entered into a

closing agreement with the Service covering the art tax shelter

adjustment, and the signing of a Form 872-A therefore would have

been a useless act as to that adjustment.    As the parties had

agreed to the liability arising out of the art shelter adjustment

by executing a closing agreement, the Service could have

immediately assessed the tax on that adjustment.    Consequently,

the only logical purpose that could have been served by entering

into the extension agreement would have been to allow the Service

to audit other items on the Joneses’ 1981 return and determine

whether any additional tax might be due, e.g., from disallowance

of other deductions claimed on the return.    If the Joneses had

merely wanted to keep the assessment period open for the art

shelter adjustment, they could have signed a limited or

restricted Form 872-A limiting the extension to the art tax
                              - 17 -

shelter adjustment.   They, however, did not sign such a limited

consent; instead, they chose to extend the period of limitation

as to all matters concerning their 1981 year for an indefinite

period by signing the unrestricted Form 872-A.

     We cannot conclude on the record in the instant case that

the Joneses intended, at the time they signed the Form 872-A, to

ascribe the meaning to the phrase “the final determination of

tax” to which they now adhere.   No evidence was offered that

would point to such an intent on the part of the Joneses.    The

failure of such evidence is significant because petitioner

testified at trial and therefore could have enlightened the Court

about such an intent, a fact peculiarly within her knowledge.

Petitioner’s failure to testify as to such an intent suggests

that the testimony would have been unfavorable to petitioners.

Mecom v. Commissioner, 101 T.C. at 385 n.17 (and cases cited

therein).   We think that by signing the Form 872-A under the

circumstances of the instant case, the Joneses’ actions were more

consistent with respondent’s interpretation of the agreement,

i.e., that the parties’ intended the term “tax” in the phrase

“the final determination of tax” to mean the Joneses’ tax

liability for the entire 1981 year.

     Based on the foregoing, we hold that, because there was no

closing agreement signed for the Joneses’ entire 1981 year, sec.

7121; Estate of Meyer v. Commissioner, 58 T.C. 69, 70 (1972); see
                             - 18 -

also Botany Worsted Mills v. United States, 278 U.S. 282, 288

(1929)3, and the assessment made on June 17, 1985, was not a

final determination of tax, the Form 872-A did not terminate.

Instead, it terminated when the notice of deficiency was sent.

     We next consider the innocent spouse issue.    The innocent

spouse provisions of the Internal Revenue Code provide that a

spouse is relieved of liability for tax attributable to an

understatement of tax on a return in cases where:    (a) A joint

return has been filed for the taxable year; (b) on the return

there is a substantial understatement of tax attributable to

grossly erroneous items of one spouse; (c) the other spouse

establishes that in signing the return he or she did not know,

and had no reason to know, that there was such an understatement;

and (d) taking into account all of the facts and circumstances,

it is inequitable to hold the other spouse liable for the

deficiency in tax attributable to the understatement.    Sec.

6013(e)(1).

     Failure to prove any one of the four elements set forth in

section 6013(e)(1) prevents a taxpayer from qualifying for relief

under the “innocent spouse rule”.   Park v. Commissioner, 25 F.3d

1289, 1292 (5th Cir. 1994), affg. T.C. Memo. 1993-252.

Petitioners have the burden of proving all four elements.       Estate

of Krock v. Commissioner, 93 T.C. 672, 677 (1989).


3

     See also Fudim v. Commissioner, T.C. Memo. 1994-235.
                                - 19 -

     The parties do not dispute that the Joneses filed a joint

return for the 1981 taxable year.4       Additionally, respondent

agrees that the deductions claimed with respect to the Auburn

Mining partnership were grossly erroneous.5       Finally, respondent

concedes that petitioner did not actually know of Mr. Jones’

investment in the Auburn Mining partnership.       The dispute,

therefore, as to the Auburn Mining partnership centers on two

questions; i.e., whether petitioner had reason to know of the

substantial understatement and whether it is inequitable to hold

petitioner liable for the understatement.       As to the Choate

Square partnership, in addition to the foregoing two matters, the

question of whether the deductions were grossly erroneous remains

to be decided as well.

     The relevant standard by which a claim that a taxpayer is an

innocent spouse must be judged is whether “a reasonably prudent

taxpayer in his or her position could be expected to know that

the stated tax liability was erroneous or that further

investigation was warranted.”    Park v. Commissioner, supra at

4

     The parties have agreed that for purposes of defining
"substantial understatement" under sec. 6013(e): (1) The taxable
year 1987 is petitioner’s "preadjustment year"; (2) petitioner's
adjusted gross income for 1987 does not exceed $20,000; and (3)
the deficiency attributable to the Auburn Mining partnership in
1981 exceeds 10 percent of petitioner's adjusted gross income for
1987.
5

     Respondent does not concede that the deductions for the
Choate Square partnership taken on the Joneses’ 1981 return are
grossly erroneous.
                                - 20 -

1298.     See Sanders v. United States, 509 F.2d 162, 168 (5th Cir.

1975).     Even complete deference to the husband’s judgment and the

alleged innocent spouse’s role as a traditional homemaker will

not always sustain an innocent spouse claim.     See, e.g., Stevens

v. Commissioner, 872 F.2d 1499, 1505-1506 (11th Cir. 1989), affg.

T.C. Memo. 1988-63.     “[A] spouse seeking innocent spouse relief

cannot turn ‘a blind eye’ to, by preferring not to know of, a

deduction fully disclosed on a return when the amount of that

deduction is so large that it would reasonably put her on notice

that she should inquire further.”     Park v. Commissioner, supra at

1299.

        Significant factors to an analysis of the innocent spouse

claim are the taxpayer’s level of education, the taxpayer’s

experience in business affairs and bookkeeping, the taxpayer’s

level of involvement in the family’s financial affairs, the

presence of expenditures that appear lavish or unusual when

compared to the taxpayer’s past standard of living, the

“culpable” spouse’s openness concerning the family finances,

whether the tax treatment of the transaction in issue was hidden

in the recesses of the return, whether the taxpayer relied on an

expert, and whether the taxpayer reviewed the return.     Park v.

Commissioner, supra at 1298-1299; Sanders v. United States, supra

at 167; Bokum v. Commissioner, 94 T.C. 126, 146-149 (1990), affd.

992 F.2d 1132 (11th Cir. 1993).     We consider the interplay among

the various factors.     Different factors will predominate in
                                - 21 -

different cases.    Bliss v. Commissioner, 59 F.3d 374, 378 (2d

Cir. 1995), affg. T.C. Memo. 1993-390.

      In the instant case, petitioner ran her own businesses,

having started them prior to the year in question.   She expanded

them successfully during, and after, 1981.   She handled the

buying and selling of the inventory, purchased a building out of

which the businesses were operated, and paid the mortgage.     She

operated her businesses independently of Mr. Jones in spite of

her lack of formal education.

      Because Mr. Jones traveled extensively and for long periods

of time, petitioner managed the family and household finances.

Petitioner also managed the Joneses’ monthly bills and large

expenditures, freely transferring funds between accounts to do

so.   The evidence shows that petitioner managed most of the

family money, except for Mr. Jones’ expense account.   Petitioner

demonstrated by her testimony that she kept track of Mr. Jones’

earnings and where they went.    Petitioner knew about many of Mr.

Jones’ investments and asked about others.

      Petitioner testified that she saw at least part of the 1981

return that she signed and that she also saw the amount of the

refund claimed.    She also testified that the amount of the refund

claimed on the 1981 return was very large compared to the

overpayment claimed on the 1979 return and the tax shown as due

on the 1980 return.   She signed the 1981 joint return just below

the place on the return which reflected the unusual overpayment
                              - 22 -

of tax.   The deductions were not hidden in the recesses of the

return but were clearly set forth on Schedule E.    The sum of the

losses from Schedule E, totaling $106,755, was set forth on line

17 on the front page of the return.    Clearly, under such

circumstances, petitioner should have been on notice of the

substantial and unusual losses.   Petitioner, however, testified

that she did not examine the return in any detail and that she

signed the return even though she had questions about it.    As

stated above, petitioner is not entitled to turn “a blind eye” to

such facts.   Park v. Commissioner, 25 F.3d at 1299.

     As to the notion that “an expert” prepared the Joneses’

return, thereby relieving petitioner from pursuing questions she

might otherwise have raised, it was petitioner who found Mr.

Singleton and was the first to make use of his services.     She

introduced him to Mr. Jones who then hired him to do their joint

return for 1981.   She had some responsibilities in helping the

accountant and Mr. Jones prepare the return; i.e. gathering the

information on their charitable contributions and her businesses.

Under the circumstances, we do not think that she should now be

allowed to claim that she was denied access to the return

preparer.

     Based on the record in the instant case, the image we have

of petitioner is that of an intelligent, inquiring, and diligent

businesswoman.   Even though she lacked formal education, her

experience in the business world was certainly a good substitute.
                                - 23 -

Petitioner was an enterprising individual, savvy enough in

business affairs and bookkeeping to have built the successful

businesses that she operated.    We are satisfied, based on the

record in the instant case, that petitioner had the ability to

understand that there was a substantial understatement on the

1981 return and that she was sufficiently put on notice that she

needed to inquire further into the partnership deductions

generating the understatement.    Consequently, we hold that

petitioner has failed to prove that she did not have reason to

know that there was an understatement of tax on the return for

the 1981 taxable year and that petitioner is therefore not

entitled to relief as an innocent spouse under section 6013(e).6

      To reflect the foregoing,

                                               Decision will be

                                          entered under Rule 155.




6

     Because we hold that petitioner had reason to know of the
understatement, we need not address the questions of whether the
Choate Square partnership deductions were grossly erroneous or
whether it would be inequitable to hold petitioner liable for the
deficiency attributable to the understatement.
