James E. Redlark and Cheryl L. Redlark - Page 30

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               Before the Tax Reform Act of 1986 (TRA), Pub. L. 99-514,               
          100 Stat. 2085, this and other courts allowed an individual to              
          deduct interest on his or her income tax liability as a business            
          expense under sections 62(a)(1) and 162(a), see, e.g., Standing             
          v. Commissioner, 28 T.C. 789, 795 (1957), affd. 259 F.2d 450                
          (4th Cir. 1958), or a nonbusiness itemized deduction, sec.                  
          163(a).1  Thus, the courts allowed an individual to compute                 
          adjusted gross income (AGI) under section 62(a)(1) by deducting             
          deficiency interest that was an ordinary and necessary expense              
          under section 162(a), irrespective of the provisions of section             
          163 and independent of whether the individual itemized his or her           
          deductions.  See generally Bittker & Lokken, Federal Taxation Of            
          Income, Estates And Gifts, par. 31.1.1, at 31-2 (2d ed. 1990)               
          ("Since, even in the absence of �163(a), interest attributable to           
          business or profit-oriented transactions would be deductable                
          under �162 * * * or �212 * * *, the principal function of �163(a)           
          is to permit the deduction of interest on consumer debt").  The             
          Courts also allowed an individual to deduct deficiency interest             
          that was an ordinary and necessary business expense under section           
          162(a) in order to compute a net operating loss (NOL) under                 
          section 172(d)(4).  Polk v. Commissioner, 31 T.C. 412, 415                  
          (1958), affd. 276 F.2d 601 (10th Cir. 1960).                                
               The Commissioner disagrees with the Courts' view.  According           
          to her, interest on an income tax liability attributable to a               

          1 Whether the interest was deductible as a business expense                 
          or a nonbusiness itemized deduction depended on the character of            
          the income tax liability.                                                   




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