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v. Commissioner, 91 T.C. 371, 392 (1988); Coleman v.
Commissioner, supra at 209-210.
The issue presented to us in petitioner’s instant motion,
however, involves a slightly different issue -- namely, once
actual payments (or portions thereof) are disallowed as
“interest”, should such payments be treated as repayments of the
principal portion of the stated indebtedness that is to be
recognized for Federal income tax purposes and thereby reduce the
interest allowable in subsequent periods.
We have found limited but helpful authority on this issue.
In Bizub v. Commissioner, T.C. Memo. 1983-280, payments of
$58,500 designated as “prepaid” interest were made with respect
to stated principal on an inflated, nonrecourse indebtedness.
Claimed interest deductions relating to payments of “prepaid”
interest were disallowed, and the payments were treated as
repayments of principal. See also Siegel v. Commissioner, 78
T.C. 659, 687 n.5 (1982).
In Prussin v. Commissioner, T.C. Memo. 1990-287, on remand
from the Third Circuit (Pleasant Summit Land Corp. v.
Commissioner, 863 F.2d 263 (3d Cir. 1988), affg. in part and
revg. in part T.C. Memo. 1987-469), nonrecourse indebtedness
associated with the purchase of an apartment building was treated
as genuine indebtedness to the extent only of the fair market
value of the building. The taxpayers therein argued that the
interest deduction that should be allowed should be calculated by
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