- 15 -
has failed to carry its burden of proof.4 Given the fact that
the charges stemmed from the personal conduct of the Defendants,
we are simply not persuaded that any of the payments made by
petitioner to the Fund were petitioner's business expenses.5
2. Interest Expense
Respondent disallowed petitioner's $160,000 interest
deduction on the ground that the subject properties were
contributed to petitioner's capital. Petitioner argues that it
may deduct the interest because it acquired the Mishawaka
property and the Clarksville property from Mr. Mohney.
An accrual method taxpayer may deduct interest that has
accrued within the taxable year on debt. Sec. 163(a). The term
"debt" connotes an existing, unconditional, and legally
enforceable obligation for the payment of money. First Natl. Co.
v. Commissioner, 289 F.2d 861 (6th Cir. 1961), revg. and
remanding 32 T.C. 798 (1959). Whether interest has accrued on
debt is a factual determination. Roth Steel Tube Co. v.
4 Petitioner contends that a criminal conviction against
Mr. Mohney would damage petitioner because he was indispensable
to it. We are unpersuaded. Petitioner has not shown that it
would have been inoperable as a result of Mr. Mohney's criminal
conviction. Petitioner has also presented no evidence that it
suffered any business decline or any damage to its business
relationships as a result of Mr. Mohney's prosecution and/or
conviction.
5 We also are not convinced that the expenses were ordinary
and necessary. Suffice it to say that petitioner has not proven
that they were.
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