- 13 -
be treated as a repayment of principal and applied, for Federal
income tax purposes, to reduce the $2,370,000 outstanding
principal balance on the Partnership’s indebtedness. Any
contrary treatment of the portion of each monthly $43,725 payment
in excess of allowable interest would produce a result contrary
to the economic substance of the indebtedness before us.
In our prior memorandum opinion in Levy v. Commissioner,
T.C. Memo. 1991-646, we disregarded the express terms of the
promissory note, and we based our decision on what constituted
the economic substance and reality of the transaction. We see no
reason to depart from that approach at this time. The
Partnership made monthly $43,725 payments to the creditor, only a
portion of which represents properly accrued interest expense.
The excess of the monthly $43,725 payments by the Partnership to
the creditor should be applied to the $2,370,000 principal
portion of the Partnership's stated indebtedness that is to be
recognized for Federal income tax purposes, and such $2,370,000
is to be treated as amortized until paid off.
For the reasons stated, we shall deny petitioner’s motion to
vacate decision.
An appropriate order
will be issued.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13
Last modified: May 25, 2011