- 11 -
Thus, if debt proceeds are allocated by the passthrough
entity to a trade or business expense, the interest on the debt
is similarly allocated. In the case before us, however, no
proceeds of debt incurred by Aqua Sun have been allocated by Aqua
Sun to its trade or business, so allocation rules are not germane
to petitioners' position here.
As a final argument, petitioners seek to have us declare
invalid section 1.163-9T(b)(2)(i)(B), Temporary Income Tax Regs.,
52 Fed. Reg. 48409 (Dec. 22, 1987).
This provision reads as follows:
(2) Interest relating to taxes--(i) In general.
Except as provided in paragraph (b)(2)(iii) of this section,
personal interest includes interest--
* * * * * * *
(B) Paid under section 453C(e)(4)(B) [now section
453(l)(3)] (interest on deferred tax resulting from
certain installment sales) and section 1291(c)
(interest on deferred tax attributable to passive
foreign investment companies); or * * *
Petitioners' challenge to the validity of this regulation is
mooted by our holding that the interest paid by petitioner
pursuant to section 453(l)(3) is not paid or incurred in a trade
or business of petitioner, so that, regardless of the validity or
invalidity of the regulation, we need not consider the merits of
petitioners' argument.
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