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depreciation and interest expenses and the expenses of Sale by
Owner and Far Western.
(a) Respondent contended that petitioner did not establish
that prior year losses were based on deductible business expenses
under section 162, rather than on nondeductible personal expenses
under section 262. Moreover, petitioner's own accountant could
not vouch for the accuracy of NII's extant books and records, and
virtually no other testimony concerned their accuracy. The fact
that respondent prevailed on this issue at trial confirms that
her position was substantially justified.
(b) Interest expense deductions for several loans secured
by the Burke property, including the San Francisco Loan, also
formed part of the claimed net operating losses from years prior
to 1989 and 1990. The property collateralized a $75,000 loan
from a group of investors (Investor Group loan) from June 10,
1982, until October 29, 1985. On September 27, 1985, Owens
Financial Group, Inc., lent petitioner $85,000 (Owens loan).
Respondent conceded in her opening statement that
petitioner was entitled to deduct the interest on the San
Francisco Loan in 1989 and 1990 (see supra pp. 10-11), but did
not concede the deductibility of the 1988 interest on that loan,
which substantially contributed to petitioner's net operating
loss for that year. Documents verifying the purpose of interest
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