National Industrial Investors, Inc. - Page 23

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            period, petitioner may move to reopen the record for the sole                              
            purpose of offering additional evidence regarding the San                                  
            Francisco Loan interest deduction for this period.                                         
                  As for the Investor Group Loan, the ending balance as of                             
            October 29, 1985, is not in evidence.  But because the deed of                             
            trust for the Investor Group Loan overlaps the deed of trust for                           
            the Owens Loan by only a month, we believe that the Owens Loan                             
            effectively refinanced the Investor Group Loan.  We, therefore,                            
            find that the principal balance of the Investor Group Loan                                 
            increased from $75,000 to $85,000 between June 10, 1982 and                                
            October 29, 1985.                                                                          
                  The interest rate for the Investor Group Loan and for the                            
            Owens Loan is also unknown.  Nevertheless, we believe petitioner                           
            accrued some interest on these notes, and that a reasonable rate                           
            of interest for the period in question would be 5-1/2 percent                              
            simple interest per annum.  Interest deductions from these notes                           
            will be recalculated on this basis under Rule 155.                                         
                  The McMahon Note accrued interest in 1989 and 1990.  The                             
            McMahon Note requires no payment until December 31, 1997, the day                          
            before the Burke Lease terminates, or until petitioner sells the                           
            Burke Property.  Petitioner claims that since it is an accrual                             
            method taxpayer, it is entitled to deduct the interest currently.                          
            Respondent denied petitioner's deduction, asserting that                                   
            petitioner's liability was neither fixed nor certain.  Respondent                          

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