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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 as
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