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interest in Stonehurst. Mr. Heitzman deliberately held his
interest in Stonehurst as separate property when he had the
opportunity to elect to hold his interest as a joint survivorship
tenency or tenancy in common. If petitioner and Mr. Heitzman had
filed separate returns, Mr. Heitzman would have claimed the
deduction on his return, and petitioner would not have been
liable for the resulting understatement. Therefore the
disallowed deductions were items attributable to Mr. Heitzman.
b. Grossly Erroneous Deduction
The Code defines a “grossly erroneous” deduction as one
having no basis in fact or law. Sec. 6013(e)(2). Neither the
Code nor the applicable regulations define “basis in fact or
law”. However, Congress did not intend that the innocent spouse
defense would allow the putative innocent spouse to escape
liability for apparently legitimate claims that are later
disallowed. Friedman v. Commissioner, 53 F.3d 523, 529 (2d. Cir.
1995), affg. in part, revg. and remanding in part T.C. Memo.
1993-549. Addressing this issue, we have stated that
A deduction has no basis in fact when the expense for
which the deduction is claimed was never, in fact,
made. 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 may be described as frivolous,
fraudulent, or * * * phony. [Belk v. Commissioner, 93
T.C. 434, 442 (1989); Douglas v. Commissioner, 86 T.C.
758, 762-763 (1986).]
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