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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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