- 2 -
R disallowed W's interest deductions, determining
that the interest had not been "paid" but merely
postponed. R adjusted Ps' distributive share of W's
ordinary loss accordingly.
Held: W is not entitled to interest deductions
under sec. 163(a), I.R.C. A cash basis borrower is not
entitled to an interest deduction where the funds used
to satisfy the interest obligation were borrowed for
that purpose from the same lender to whom the interest
obligation was owed. In those circumstances, there has
been no "payment" of interest; rather, "payment" has
merely been postponed.
John S. Brown, George P. Mair, William A. Hazel, Matthew D.
Schnall, Donald-Bruce Abrams, and Joseph L. Kociubes, for
petitioners.
Charles W. Maurer, Jr., for respondent.
OPINION
RUWE, Judge: Respondent determined deficiencies of $753
and $402,169 in petitioners' 1977 and 1980 Federal income taxes,
respectively. After a concession by respondent, the issue for
decision is whether White Tail, a general partnership, "paid"
interest when it borrowed the funds used to satisfy its interest
obligations from the same lender to whom the interest was owed.
Petitioner Charles H. Davison was a partner in White Tail, and
petitioners claimed their distributive share of the ordinary loss
reported by White Tail on their 1980 Federal income tax return.
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