- 28 -
proprietorship, provides that regardless of that fact, an
interest expense is not deductible, respondent’s regulation
should be considered invalid.
The statute mandates an allocation and allows a deduction
for interest expense related to a taxpayer’s business.
Respondent’s regulation, in the situation of a sole proprietor,
would leave nothing to be allocated.
Further, respondent’s position herein and her regulation
under section 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs.,
52 Fed. Reg. 48409 (Dec. 22, 1987), is inconsistent with the
specific allocation rule provided under section
1.163-8T(c)(3)(ii), Temporary Income Tax Regs., 52 Fed. Reg.
25001 (July 2, 1987), with regard to the frequent situations
where no loan proceeds are involved in the underlying transaction
or activity (namely, where the seller or provider of goods or
services provides the financing to the taxpayer or where the
transaction involves interest expenses associated with the mere
extension of credit, not the provision of funds). Section 1.163-
8T(c)(3)(ii), Temporary Income Tax Regs., provides as follows:
If a taxpayer incurs or assumes a debt in consideration
for the sale or use of property, for services, or for
any other purpose, or takes property subject to a debt,
and no debt proceeds are disbursed to the taxpayer, the
debt is treated for purposes of this section as if the
taxpayer used an amount of the debt proceeds equal to
the balance of the debt outstanding at such time to
make an expenditure for such property, services, or
other purpose. [Emphasis added.]
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011