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a deed of trust on petitioners’ residence. Seattle Pump employed
petitioner John A. Malone (petitioner) and other members of his
family after petitioners bought the stock.
Petitioners deducted interest they paid on the notes they
used to buy the stock. Respondent disallowed the deduction on
the grounds that the interest was personal interest under section
163(h). After concessions, we must decide:
1. Whether section 163(h), which was effective for taxable
years beginning after December 31, 1986, applies to interest paid
in 1989, 1990, and 1991 on indebtedness incurred in December
1986. We hold that it does.
2. Whether the interest at issue either is trade or
business interest under section 163(h)(2)(A) or is investment
interest under section 163(h)(2)(B) and (d). We hold that the
interest is investment interest and that petitioners have not
shown that they received any investment income. Sec. 163(d).
3. Whether petitioners may deduct the interest at issue as
an expense for the production of income under section 212. We
hold they may not.
4. Whether petitioners may deduct the interest at issue as
qualified residence interest under section 163(h)(2)(D) and (3).
We hold that they may not.
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