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parties agree that the disallowed Schedule C expenses relate to
Mr. Womack's property services business. They do not agree as to
the attribution of the unreported income. Petitioner had no
income other than income from her secretarial job during the
years at issue, and all of her W-2 wage income was reported on
the tax returns. We find that the source of the unreported
income was an item attributable to Mr. Womack.
Grossly Erroneous Items
"Grossly erroneous items" means any item of gross income
attributable to a spouse which is omitted from gross income and
any claim of a deduction, credit, or basis by a spouse in an
amount for which there is no basis in fact or law. Sec.
6013(e)(2). An overstatement of cost of goods sold also results
in an item omitted from gross income and hence constitutes a
grossly erroneous item as a matter of law. Lilly v. Internal
Revenue Service, 76 F.3d 568 (4th Cir. 1996); Metra Chem Corp. v.
Commissioner, 88 T.C. 564, 660-661 (1987); Velinsky v.
Commissioner, T.C. Memo. 1996-180; Lawson v. Commissioner, T.C.
Memo. 1994-286; LaBelle v. Commissioner, T.C. Memo 1984-69.
A deduction has no basis in law or fact if it is fraudulent,
frivolous, phony, or groundless. Feldman v. Commissioner, 20
F.3d at 1135; Douglas v. Commissioner, 86 T.C. 758, 763 (1986).
A taxpayer cannot rely on the disallowance of an item to prove
the lack of basis in fact or law. Feldman v. Commissioner, 20
F.3d at 1136; Bokum v. Commissioner, 992 F.2d 1132, 1142 (11th
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