- 15 - allocation is not affected by the use of an interest in any property to secure the repayment of such debt or interest. * * * [52 Fed. Reg. 25000 (July 2, 1987).] On this basis, it can be argued that the proceeds of an individual's income tax indebtedness cannot be considered as expended in a trade or business. From this it would follow that section 1.163-9T(b)(2)(I)(A), Temporary Income Tax Regs., which treats interest on income tax deficiencies as personal interest (see infra p. 19), simply represents a specific example of the application of the expenditure method of allocation of indebtedness set forth in section 1.163-8T, Temporary Income Tax Regs., and is therefore valid. The question to be resolved is whether section 7805(a) provides a sufficient basis to justify the application of the expenditure method of allocation set forth in section 1.163- 8T(c), Temporary Income Tax Regs., to the factual situation involved herein. Whatever the merits of such method of allocation may be in other contexts, we do not think that the Secretary of the Treasury should be entitled to use the authority conferred by section 7805(a) to construct a formula which excludes an entire category of interest expense in disregard of a business connection such as exists herein. Such a result discriminates against the individual who operates his or her business as a proprietorship instead of in corporate form where the limitations on the deduction of "personal interest" would not apply. See Brennan & Megaard, supra at 33. We are not persuaded that we should view the category of income tax deficiencies asPage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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