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attributable to a deduction is a grossly erroneous item only if
the claim of a deduction has no basis in fact or law. Sec.
6013(e)(2)(B). The phrase “no basis in fact or law” is not
defined in section 6013(e). This Court, however, has held:
A deduction has no basis in law when the expense, even
if made, does not qualify as a deductible expense under
well-settled legal principles or when no substantial
legal argument can be made to support its
deductibility. Ordinarily, a deduction having no basis
in fact or in law can be described as frivolous,
fraudulent, or, to use the word of the [Ways and Means]
committee report [on the Deficit Reduction Act of
1984], phony. [Douglas v. Commissioner, 86 T.C. 758,
762-763 (1986); fn. ref. omitted.]
To prove that a disallowed deduction has no basis in fact or law,
an individual seeking innocent spouse status is not entitled to
rely on the Commissioner’s disallowance of the deduction
contained in the notice of deficiency, without introducing
further evidence to establish that the deduction has no basis in
fact or law. Douglas v. Commissioner, supra at 763; Rampulla v.
Commissioner, T.C. Memo. 1993-504.
In this case, for the bad debt deduction to be considered
grossly erroneous, petitioner must prove it had no basis in fact
or law. Rule 142(a). Petitioner relies solely on respondent’s
disallowance of the deduction to prove the lack of a basis in
fact or law. However, respondent’s basis for disallowing the
deduction, set forth in the notice of deficiency, does not make
self-evident that the deduction lacks a basis in fact or law;
rather, the determination merely states that such expense has not
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