- 42 -
able to the claimed 1988 NOL deduction.
We reject respondent's contention that the claimed 1988 NOL
deduction does not constitute a grossly erroneous item under
section 6013(e)(1)(B) because that deduction was not disallowed,
but was merely recharacterized. That respondent’s basis for
disallowing the claimed 1988 NOL deduction is the recharacter-
ization of Mr. Gordon's 1986 net trading loss from an ordinary,
to a capital, loss does not mean that she is not disallowing that
deduction. See Bokum v. Commissioner, 94 T.C. 126, 141-142
(1990), affd. 992 F.2d 1132 (11th Cir. 1993). Indeed, respondent
determined in the notice (1) that the Gordons are not entitled to
the claimed 1988 NOL deduction of $268,318 and (2) that they are
entitled for 1988 to a deduction for a capital loss carryover of
$7,612 that is attributable to Mr. Gordon's 1986 net trading
loss. Accordingly, we conclude that the claimed 1988 NOL deduc-
tion will constitute a grossly erroneous item within the meaning
of section 6013(e)(1)(B) if Ms. Gordon establishes that that
claimed deduction has "no basis in fact or law" within the
meaning of section 6013(e)(2)(B). See Bokum v. Commissioner,
supra at 141-142; Flynn v. Commissioner, 93 T.C. 355, 364 (1989).
In Douglas v. Commissioner, 86 T.C. 758, 762-763 (1986), we
construed the phrase "no basis in fact or law" as follows:
As we read the statute as a whole and its legislative
history, 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
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