2
facts and holdings in T.C. Memo. 1993-326 are incorporated by
this reference.
The issue in the prior case was whether petitioner D.
Sherman Cox (Mr. Cox) was entitled to deduct payments made to his
wife petitioner Maxine M. Cox (Mrs. Cox), and on behalf of his
law practice, for the rental of property owned by Mr. and Mrs.
Cox as tenants by the entireties. The property at issue was
located in St. Louis, Missouri, and purchased by petitioners in
November 1980. Mr. Cox's law practice occupied and paid "rent"
of $18,000 to petitioners for the property during 1987. On their
joint 1987 Federal income tax return, petitioners reported
receipt of the $18,000 in rental income on their Schedule E. Mr.
Cox reported the $18,000 in rental payments on his Schedule C for
his law practice as an ordinary and necessary business expense.
Respondent disallowed the Schedule C rental expense of
$18,000 in its entirety because the payments were made for the
use of property to which Mr. Cox has title and in which he holds
an equity interest. Respondent also deleted the corresponding
rental income reported by petitioners on Schedule E. Contrary to
the positions argued by both petitioners and respondent, we held
that based on petitioners' interest in the property, as
determined by Missouri law and under section 162(a), Mr. Cox was
entitled to deduct one-half of the payments, and, in turn, one-
half of the payments was reportable as rental income on the joint
return.
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