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purchased the stock. Milton, Dale, and Leo sold the Russon
Brothers stock to Scott, Brent, Robert, and Gary so the four sons
of the three fathers could actively continue the mortuary
business.
All the assets of Russon Brothers, except for a mutual fund
acquired by the company in 1989 for $12,000 with a 1995 value of
$20,000, are used actively in the mortuary business. The
checking account of Russon Brothers has an average balance of
$70,000 with cash available of $30,000 and is all actively used
in the mortuary business.
Russon Brothers has never paid interest, dividends,
annuities, or royalties to any of its shareholders during its
existence of 26 years. Beginning before December 23, 1985, and
continuing through all years involved in the tax matter before
the Court, Scott, Brent, Robert, and Gary actively and materially
participated in Russon Brothers as an active mortuary business on
a regular, continuous, and substantial basis in excess of 40
hours per week. Scott, Brent, Robert, and Gary have never been
engaged in the trading or dealing of stocks or securities.
Section 163(a) allows "as a deduction all interest paid or
accrued within the taxable year on indebtedness." However,
section 163(d)(1) provides that "In the case of a taxpayer other
than a corporation, the amount allowed as a deduction under this
chapter for investment interest for any taxable year shall not
exceed the net investment income of the taxpayer for the taxable
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