- 56 -
whether interest with respect to an individual's Federal income
tax liability is deductible. For the foregoing reasons, the
first requirement of the NationsBank teaching is satisfied.
C. The Temporary Regulations Promulgated Under
Section 163(h) Are Permissible Agency Interpretations
1. Section 1.163-8T, Temporary Income Tax Regs.
Is Valid
In order to give meaning to the term "properly allocable",
and thereby implement section 163(h)(2)(A), the Secretary has
promulgated section 1.163-8T, Temporary Income Tax Regs. The
focus of the temporary regulations is on the relationship between
an individual's debts and her activities. That is because, under
section 163(h)(2)(A), interest piggybacks on indebtedness, and it
is the allocation of a particular indebtedness to a trade or
business that establishes the deductibility of the related
interest: "interest paid or accrued on indebtedness properly
allocable to a trade or business". Sec. 163(h)(2)(A) (emphasis
added). The general rule of the temporary regulations is that
interest on indebtedness is allocated in the same manner in which
the underlying debt is allocated. Sec. 1.163-8T(a)(3), Temporary
Income Tax Regs. "Debt", the temporary regulations prescribe,
"is allocated by tracing the disbursements of the debt proceeds
to specific expenditures." Id. Thus, for interest to be
deductible pursuant to section 163(h)(2)(A), the interest must be
traceable to a debt-financed trade or business expenditure (i.e.,
an expenditure made in connection with the conduct of a trade or
business). See sec. 1.163-8T(a)(4)(ii), (b)(7), and (c),
Temporary Income Tax Regs., 52 Fed. Reg. 25000 (July 2, 1987).
Page: Previous 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 NextLast modified: May 25, 2011