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2. Petitioner's Contention That the Business Expense
Deductions Were Grossly Erroneous
Petitioner contends, as she did on brief, that section
274(d) elevates substantiation from a procedural proof
requirement to an actual element of entitlement to the deduction,
and therefore, if there was no substantiation, the deductions
were grossly erroneous.
In order to prove that the travel and entertainment expenses
that were claimed were grossly erroneous, petitioner must
demonstrate that the claimed losses had no basis in fact or law.
Sec. 6013(e)(2)(B).
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. Thus, petitioner must establish that the claimed
deductions were fraudulent, frivolous, or, to use the word of the
committee report,2 phony. Bokum v. Commissioner, 94 T.C. 126
(1990), affd. 992 F.2d 1132 (11th Cir. 1993); Douglas v.
Commissioner, 86 T.C. 758, 762-763 (1986), affd. without
published opinion (10th Cir. June 28, 1989).
2H. Rept. 98-432 (Part 2), at 1502 (1984).
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