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The above regulation simply provides that in the many
situations where financing or credit transactions do not involve
the disbursement of any loan proceeds but do involve the
extension of credit and interest charges or expenses therefor,
the interest expenses are to be allocated between the taxpayer’s
business and personal activity based on the nature of the
particular underlying activity giving rise to the extension of
credit.
Under section 1.163-8T(c)(3)(ii), Temporary Income Tax
Regs., even though no loan proceeds were disbursed to petitioners
by the Government, credit was extended to petitioners by the
Government, and petitioners were charged interest with regard
thereto.
Because the underlying activity in question in this case
(giving rise to the tax deficiency and to the Government’s
extension of credit to petitioners) undisputedly relates to
petitioners’ business, under section 1.163-8T(c)(3)(ii),
Temporary Income Tax Regs., the interest expense in question
should be treated as allocable to petitioners’ business and as
deductible under the statute.
COLVIN and LARO, JJ., agree with this concurring opinion.
LARO, J., concurring: I agree with the majority opinion.
I write separately, however, to emphasize the invalidity of
section 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., 52 Fed.
Reg. 48409 (Dec. 22, 1987), for reasons additional to those
stated by the majority.
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