Don Ballantyne and Susanne C. Ballantyne - Page 19

          Unreported Interest Income                                                  
               The next issue is whether petitioners had $40,188 of                   
          unreported interest income in 1986.  Petitioners presented no               
          credible evidence to rebut the presumption of correctness afforded          
          the notice of deficiency.  (We were not impressed with the                  
          credibility of petitioner's testimony.)  Accordingly, we sustain            
          respondent's determination that petitioners are liable for                  
          unreported interest income of $40,188 in 1986.                              
          Interest Deduction                                                          
               The third issue is whether petitioners' deduction of $122,605          
          in 1986 for interest paid to EPIC should be disallowed.  Interest           
          is not deductible "if the underlying transaction is a sham * * *.           
          Nor is interest deductible if it is incurred in a transaction 'that         
          can not with reason be said to have purpose, substance, or utility          
          apart from their anticipated tax consequences.'"  Sheldon v.                
          Commissioner, 94 T.C. 738, 760 (1990) (citations omitted).                  
               In view of our finding that the sale of the BTG stock to EPIC          
          was a sham transaction, the interest payments to EPIC are not               
               The final issue is whether petitioners are liable for                  
          additions to tax under sections 6653(a)(2) and 6653(a)(1)(B) on the         
          portion of the underpayment attributable to the transfer of the             
          Escondido property to Balmac.  Petitioners have conceded the                
          application of all additions to tax raised in respondent's notice           

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