Sam E. Scott - Page 18
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income. Investment interest means interest paid on indebtedness
allocable to property held for investment. Sec. 163(d)(3)(A).
Property held for investment includes any interest held by the
taxpayer involving the conduct of a trade or business which is not
a passive activity and with respect to which the taxpayer did not
materially participate. Sec. 163(d)(5)(A)(ii). Net investment
income means investment income (gross income from property held for
investment and net gain from the disposition of property held for
investment) over investment expenses. Sec. 163(d)(4)(A) and (B).
On his 1991 Federal tax return, petitioner reported that the
interest expenses incurred were investment interest. In his
petition and on brief, petitioner described the interest as
incurred from business loans. At trial, petitioner described the
interest as incurred on loans borrowed to support his interest in
an automobile dealership.
Petitioner offered no evidence of his involvement in the
automobile dealership and thus failed to sustain his burden with
respect to the nature of the interest paid. Rule 142(a);
Cannizzaro v. Commissioner, T.C. Memo. 1982-633; see also King v.
Commissioner, 89 T.C. 445, 456-467 (1987). Consequently, we hold
that petitioner is entitled to deduct investment interest expenses
only to the extent of net investment income pursuant to section
7 In the notice of deficiency, respondent allowed $211 of
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