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calculated under the economic accrual method, respondent treated
the portion of each monthly payment that does not represent
allowable interest as a repayment of principal.
Respondent’s calculation thus reduces or amortizes each
month the principal portion of the Partnership’s indebtedness on
the promissory note that is to be recognized for Federal income
tax purposes. Under such calculation, the allowable interest
deduction for each succeeding month is also reduced, and the full
$2,370,000 principal portion of the Partnership’s indebtedness
that is to be recognized for Federal income tax purposes will be
treated as paid off in just over 6 years.
Petitioner argues that because the Court in the first of the
above Levy opinions, 92 T.C. at 1365, sets forth a schedule of
the precise amount of the interest deductions allowable under the
economic accrual method (based on the Partnership’s total stated
indebtedness on the promissory note of $4,770,000) and because
the Court in the second of the above Levy opinions, T.C. Memo.
1991-646, recognized for Federal income tax purposes
approximately one-half or $2,370,000 of the $4,770,000 stated
principal on the indebtedness, petitioner should now be allowed
to treat the same percentage, or one-half, of each monthly
$43,725 payment (namely, $21,862) as interest properly accruable
under the economic accrual method and to disregard the balance of
each monthly payment for purposes of calculating, for subsequent
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