John A. Malone and Brenda K. Malone - Page 18

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          interest at issue does not qualify under the trade or business              
          exception under section 163(h)(2)(A).7                                      
               3.   Limitation of Deduction of Investment Interest                    
               The amount of investment interest that a taxpayer other than           
          a corporation may deduct may not exceed the taxpayer's net                  
          investment income for the taxable year.  Sec. 163(d)(1).                    
          Petitioners have not shown that they had any net investment                 
          income during the years in issue.  There is no evidence that                
          Seattle Pump paid dividends during the years in issue.8  We                 
          conclude that petitioners may not deduct any of the interest at             
          issue as investment interest except as allowed next.                        
               4.   Phase-In Limitations                                              
               Disallowance of the deduction of net investment income                 
          interest is phased-in during taxable years 1987 to 1990.  Sec.              
          163(d)(6).  Disallowance of personal interest is phased-in for              
          1987 to 1990 under different rules than for net investment                  
          interest.  Sec. 165(h)(5).  Respondent determined that the                  
          interest at issue is personal interest.  Consistent with that               
          determination, petitioners should be entitled to an interest                

               7In light of this conclusion, we need not decide                       
          respondent's contention that petitioners' purchase of Seattle               
          Pump stock was properly allocable to their trade or business of             
          providing services as an employee.  See sec. 163(h)(2)(A).                  
               8Petitioners do not argue that their wages are investment              
          income under sec. 163(d).  Wages received by a shareholder are              
          not investment income under sec. 163(d); wages are compensation             
          for personal services.  Sec. 162(a)(1).                                     




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