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I. Grossly Erroneous Requirement
Linda must establish that there was a substantial
understatement of tax attributable to grossly erroneous items of
Ronnie. Sec. 6013(e)(1)(B). A substantial understatement is any
understatement that exceeds $500. Sec. 6013(e)(3). Any item
omitted from gross income is grossly erroneous. Sec.
6013(e)(2)(A). In addition, any claim of a deduction in an
amount for which there is no basis in fact or law is grossly
erroneous. Sec. 6013(e)(2)(B). A deduction has no basis in fact
when the expense for which the deduction is taken was not made,
and a deduction has no basis in law if the expense is not
deductible under well-established legal principles or if no
substantial legal argument can be made to support its
deductibility. Douglas v. Commissioner, 86 T.C. 758, 762-763
(1986).
Respondent disallowed several of the deductions claimed by
petitioners. Linda contends that Ronnie's inability to
substantiate the amounts claimed on the return provides a
sufficient basis to conclude that the expenses were, in fact,
never made. A taxpayer may not rely on the mere disallowance of
a claimed deduction or an inability to substantiate the amount of
an otherwise allowable deduction to establish that the deduction
had no basis in fact or law. United States v. Shanbaum, 10 F.3d
305, 314 (5th Cir. 1994); Flynn v. Commissioner, supra at 364.
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Last modified: May 25, 2011