- 18 -
Respondent disallowed $3,775 of interest expense deductions
claimed on petitioners' 1985 Federal income tax return.
Petitioners argue that they are entitled to an interest expense
deduction of $1,032 relating to a promissory note payable to
petitioner's mother. Furthermore, in their opening brief
petitioners claim additional interest deductions not taken on
their tax return.
Section 163(a) allows cash basis taxpayers a deduction for
"all interest paid * * * within the taxable year on
indebtedness." Furthermore, cash basis taxpayers must capitalize
prepaid interest and deduct such interest over the period to
which it relates. Sec. 461(g).
Petitioners argue that the interest portion of the advance
payment made on the promissory note was properly deducted in
1985. Petitioner conceded that the same amount was deducted in
1986; however such fact is irrelevant, because 1985 is the year
at issue. Respondent does not dispute this fact; instead
respondent argues that petitioner is getting a double deduction,
and therefore it should be disallowed.
We do not decide whether petitioners have erroneously taken
a deduction in 1986, because that year is not before us. Instead
we look to whether petitioners properly deducted the interest
payment in 1985. Since petitioners apportioned the amount of
interest from the due date of the payment until the end of tax
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011