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Although Mrs. Meyer owned no stock of AED, she exercised
significant control over the funds of her husband's corporation
and benefitted from corporate payment of personal expenses. Thus
the omitted income inured to petitioner's benefit both directly
and indirectly, and relief does not attach to the extent of such
benefit. Kistner v. Commissioner, T.C. Memo. 1991-463, revd. on
other grounds 18 F.3d 1521 (11th Cir. 1994), and remanded T.C.
Memo. 1995-66.
B. The Disallowed Expenses
Unlike omitted income items, disallowed deductions are not
automatically grossly erroneous if attributable to the putative
culpable spouse alone. Rather, in order for petitioner to prove
the disallowed Schedule C expenses "grossly erroneous", she must
establish the claimed deduction has "no basis in fact or law".
Sec. 6013(e)(2)(B). Petitioner can only meet this requirement if
the claimed expenses lacked deductibility under well-established
legal principles or if no substantial legal argument exists to
support the deductibility of the expense. Russo v. Commissioner,
98 T.C. 28, 32-33 (1992); Douglas v. Commissioner, 86 T.C. 758,
762-763 (1986).
Ordinarily, a deduction has no basis in fact or law if it is
"fraudulent", "frivolous", "phony", or "groundless". Bokum v.
Commissioner, supra at 1142; Russo v. Commissioner, 98 T.C. at
32; Douglas v. Commissioner, 86 T.C. at 763. The Court will not
consider a deduction groundless merely because petitioner failed
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