7
Citing U.S. Fidelity & Guar. Co. v. Hiles, 670 S.W.2d 134,
137 (Mo. Ct. App. 1984) and Rezabek v. Rezabek, 192 S.W. 107 (Mo.
Ct. App. 1917), we reasoned that Mrs. Cox was entitled to one-
half of the rental proceeds, whether paid by an outsider or by
her husband, from the property at issue under the State law of
Missouri. We held that Mr. Cox was entitled to deduct one-half
of the rent paid, on his Schedule C for his law practice, as an
expense, but not the remaining half due to his equity interest in
the property rented. We stated:
This Court has never before had the specific issue in this
case before us. We have held, however, where rental
payments were made by outsiders, that each party in a
tenancy by the entirety was entitled to report one-half of
the proceeds thereon on separately filed returns. The
issue, obviously, has previously arisen solely in the
context of husband and wife filing separate returns, since
prior to the enactment of section 469 regarding passive
losses, the receipt by the wife of income would be offset by
the deduction for rent by the husband where joint returns
were filed.
Cox v. Commissioner, T.C. Memo. 1993-326 (emphasis added). In
further support of our decision, we cited respondent's Rev. Rul.
74-209, 1974-1 C.B. 46, and Rev. Rul. 72-504, 1972-2 C.B. 90,
which provide that parties can deduct rentals paid on property in
which they hold some equity interest.
In their motion for litigation costs, petitioners contend
that they substantially prevailed as to the amount in controversy
and most significant issue, and that respondent's position was
not substantially justified. In support of the first contention,
petitioners claim that our decision in Cox v. Commissioner,
supra, established Mrs. Cox's rights and interest in the tenants
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