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interest" is defined in sec. 163(d)(3), I.R.C., as
interest paid on indebtedness properly allocable to
"property held for investment," a term that is defined
in sec. 163(d)(5)(A)(i), I.R.C., to include "property
which produces income of a type described in sec.
469(e)(1)," i.e., portfolio income such as dividends,
interest, etc.
Held: Since stock is the type of property that
normally pays dividends, it is covered by sec.
163(d)(5), I.R.C., as "property which produces income"
of a type described in sec. 469(e)(1), I.R.C.,
notwithstanding that in this case no dividends have in
fact been paid in the past on Russon Brothers stock.
Accordingly, interest paid by P on indebtedness
incurred to purchase the stock is subject to the
limitations of sec. 163(d)(1), I.R.C.
J. Michael Gottfredson, for petitioners.
James B. Ausenbaugh and Mark H. Howard, for respondent.
OPINION
RAUM, Judge: The Commissioner determined deficiencies in
petitioners' Federal income taxes of $4,220.50, $4,231.92, and
$3,967.60 for the taxable years 1990, 1991, and 1992,
respectively. Petitioner husband (petitioner or Scott) together
with his brother and two cousins, all employed full time as
funeral directors in a mortuary operated by a C corporation,
purchased all the stock of that corporation from its owners,
their fathers, so that they could conduct the mortuary business
full time and "earn a living." At issue is whether interest paid
on an indebtedness incurred by petitioner to purchase his share
of the stock is deductible as business interest or is subject to
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