John A. Malone and Brenda K. Malone - Page 12

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          interest, interest allocable to a trade or business (other than             
          the trade or business of performing services as an employee), and           
          qualified residence interest are not personal interest.  Sec.               
          163(h)(2).  However, investment interest may be deducted only to            
          the extent that the the taxpayer has net investment income.  Sec.           
          163(d).                                                                     
               Deductions are a matter of legislative grace and are                   
          strictly construed.  New Colonial Ice Co. v. Helvering, 292 U.S.            
          435, 440 (1934); Independent Co-op Milk Producers Association v.            
          Commissioner, 76 T.C. 1001, 1014 (1981).  A taxpayer bears the              
          burden of proving that he or she may deduct the claimed expense.3           
          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).                  
          C.   Effective Date of Section 163(h)                                       
               Petitioners contend that the personal interest deduction               
          limits of section 163(h) do not apply to interest they paid after           

               2(...continued)                                                        
                              treated as home equity indebtedness for any             
                              period shall not exceed $100,000 ($50,000 in            
                              the case of a separate return by a married              
                              individual).                                            
               3Petitioners called Lee E. Lott (Lott) as an expert witness.           
          Respondent objected because petitioners did not provide an expert           
          witness report before trial as required by Rule 143(f).                     
          Petitioners' counsel said that she wanted to ask Lott if                    
          petitioners handled their interest deductions correctly on their            
          tax returns.  We would have not considered Lott's testimony                 
          because it was a legal opinion.  Aguilar v. ILWU Local 10, 966              
          F.2d 443, 447 (9th Cir. 1992); Marx & Co. v. Diners' Club, Inc.,            
          550 F.2d 505, 509 (2d Cir. 1977); Estate of Cartwright v.                   
          Commissioner, T.C. Memo. 1996-286.  Petitioners did not raise               
          this issue on brief; thus we treat it as conceded.                          




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