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apply to petitioner. However, since stock is generally
productive of dividends, the Commissioner contends that the stock
here is covered by section 163(d)(5)(A)(i), notwithstanding that
the Russon Brothers stock has, in fact, never paid a dividend.
Accordingly, the argument continues, the Russon Brothers stock is
"property held for investment", and, as such, petitioners'
deduction for the interest is limited to their investment income.
If this case were to be decided under the Code as it existed
prior to enactment of the Tax Reform Act of 1986, Pub. L. 99-514,
100 Stat. 2085, petitioners might be entitled to prevail. Under
prior law, the term "investment interest" was defined as
"interest paid or accrued on indebtedness incurred or continued
to purchase or carry property held for investment." Sec.
163(d)(3)(D). At that time, the phrase "property held for
investment" had not been defined in the Code or the regulations.
Recklitis v. Commissioner, 91 T.C. 874, 907 (1988). To determine
whether interest should be subject to the limitations of then
section 163(d)(1)1, the Tax Court looked to whether the taxpayer
1 The 1985 version of section 163(d)(1) provides:
(1) In general.--In the case of a taxpayer other than
a corporation, the amount of investment interest * * *
otherwise allowable as a deduction under this chapter
shall be limited, in the following order, to--
(A) $10,000 ($5,000, in the case of a separate
return by a married individual), plus
(B) the amount of the net investment income * * *
by which the deductions allowable under this
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