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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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