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interest is a deductible business expense under section 162 and
therefore under section 62(a)(1). See Brennan & Megaard,
"Deducting Interest on Noncorporate Trade or Business Tax
Deficiencies: Uncertainty Exists Under the New Temporary
Regulations," 13 Rev. of Taxation of Individuals 22 (1989).
With the foregoing as background, we address the critical
issue before us, namely, the effect of section 163(h)(2)(A) and
section 1.163-8T, Temporary Income Tax Regs., 52 Fed. Reg. 24999
(July 2, 1987), and section 1.163-9T(b)(2)(I)(A), Temporary
Income Tax Regs., which specifically denies the deduction herein
claimed. This case is one of first impression in this Court on
this issue. See supra pp. 5-6. We note, however, that the Court
of Appeals for the Eighth Circuit in Miller v. United States, 65
F.3d 687 (1995), although agreeing without conclusion as to the
pre-section 163(h) state of the law, has accepted respondent's
position and held the temporary regulation a reasonable
interpretation of the statute and therefore valid.6
The judicial history of Miller v. United States, 65 F.3d 687
(8th Cir. 1995), affg. 95-1 USTC par. 50,068, 76 AFTR2d 95-5162
(D.N.D. 1994), revg. 841 F. Supp. 305 (D.N.D. 1993), shows that
the District Court initially entered an order, on cross motions
for summary judgment, holding that sec. 1.163-9T(b)(2)(I)(A),
Temporary Income Tax Regs., 52 Fed. Reg. 48409 (Dec. 22, 1987),
was invalid. Miller v. United States, 841 F. Supp. 305 (D.N.D.
1993). After further discovery, the District Court entered a
decision for the Government on the ground that the deficiency
interest could not be found to constitute an ordinary and
necessary business expense. Miller v. United States, 95-1 USTC
par. 50,068, 76 AFTR2d 95-5162 (D.N.D. 1994). The court found
the taxpayer "chose to operate what is an obviously improper
income deferral scheme in order to defer the reporting of
substantial amounts of money as taxable income." Id. 95-1 USTC
at 87,232, 76 AFTR2d at 95-5166. The Court of Appeals for the
(continued...)
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