- 10 -
deductions for amounts that White Tail claimed to have "paid" to
John Hancock on May 7 and December 31, 1980, in the respective
amounts of $227,647.22 and $1,587,310.46.9 Respondent adjusted
petitioners' distributive share of White Tail's ordinary loss
accordingly.
Discussion
Before we analyze the transactions in issue, it is
appropriate to state some general principles with respect to
interest deductions. Section 163(a)10 generally permits a
deduction for "all interest paid or accrued within the taxable
year on indebtedness." For cash basis taxpayers, payment must be
made in cash or its equivalent. Don E. Williams Co. v.
Commissioner, 429 U.S. 569, 577-578 (1977); Eckert v. Burnet, 283
U.S. 140, 141 (1931); Menz v. Commissioner, 80 T.C. 1174, 1185
(1983). The delivery of a promissory note is not a cash
equivalent but merely a promise to pay. Helvering v. Price, 309
8(...continued)
tax carryback to 1977 in the amount of $753. Both of these items
are computational adjustments.
9Respondent also disallowed an interest deduction for
$17,897.04 that was borrowed from John Hancock and paid to J.H.
Cochrane. Respondent now concedes that White Tail is entitled to
a deduction for its interest payment of $17,897.04 to J.H.
Cochrane.
10Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011