Eloise Gaddy Joens - Page 14

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            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 determined that petitioner and Emmens had                                
            unreported income of $41,908 in 1982, $58,745 in 1983, and                                
            $262,147 in 1984.  The majority of this income came from                                  
            narcotics trafficking.  Omissions from gross income are grossly                           
            erroneous.  Sec. 6013(e)(2).  The understatement of tax for each                          
            year attributable to the omitted income is substantial because it                         
            exceeds $500.  Sec. 6013(e)(3).                                                           
                  Respondent contends that petitioner was an integral part of                         
            the narcotics trafficking operation and that she played a                                 
            significant role in both the generation and concealment of the                            
            unreported income.  Petitioner claims that she never engaged in                           
            her then-husband's narcotics trafficking operation and was                                
            completely unaware of his involvement with drug smuggling until                           
            the date of his arrest, May 11, 1988.  Therefore, petitioner                              





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