Melvyn L. Bell - Page 22

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               The parties have stipulated that petitioners filed joint               
          returns for the years at issue, and respondent and Ms. Carvin               
          agree that the bad debt deduction is attributable to petitioner             
          Mr. Bell and that the understatement was substantial.  The                  
          remaining issues are:  (1) Whether the bad debt deduction is                
          grossly erroneous; (2) whether petitioner Darlene Carvin knew, or           
          had reason to know, of the substantial understatement of tax when           
          she signed the return; and (3) whether it would be inequitable to           
          hold Ms. Carvin liable for the income tax deficiency.  If we                
          determine that one of the requirements for innocent spouse relief           
          has not been met, the other factors do not need to be considered.           
          Bokum v. Commissioner, 992 F.2d at 1134.                                    
               For purposes of section 6013(e), a deduction is "grossly               
          erroneous" if there is no basis in fact or law for the deduction.           
          Sec. 6013(e)(2)(B).  A deduction has no basis in fact when the              
          expense for which it is claimed was never, in fact, made.                   
          Douglas v. Commissioner, 86 T.C. 758, 762 (1986).  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 in             
          support of its deductibility.  Id.  A deduction that is without             
          basis in fact or law is one that is frivolous, fraudulent, or               
          phony.  Id. at 763.  The fact that a deduction has been                     
          disallowed does not, per se, prove that the deduction is grossly            
          erroneous.  Ness v. Commissioner, 954 F.2d 1495, 1498 (9th Cir.             
          1992), revg. 94 T.C. 784 (1990); Russo v. Commissioner, 98 T.C.             


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