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Petitioners call attention to the fact that in this case there
would be no "mismeasurement of income which can result from the
deduction of investment interest expense in excess of current
investment income." However, there are at least several answers
to petitioners' point. In the first place, as has been stressed
earlier in this opinion, the statutory language was intended by
Congress, as shown in the report of the Senate Finance Committee,
to cover "property that normally produces interest, dividends or
royalty income." S. Rept. 99-313, supra, 1986-3 C.B. (Vol. 3) at
728. (Emphasis added.) And in this case the property involved,
stock, is of a type that "normally" produces dividends. In the
second place, as pointed out by Judge Friendly in Commissioner v.
Pepsi Cola Niagara Bottling Corp., 399 F.2d 390, 392 (2d Cir.
1968), "a legislature seeking to catch a particular abuse may
find it necessary to cast a wider net."
Further, petitioners fail to consider the fact that Russon
Brothers is a C corporation. If Russon Brothers were an S
corporation or a partnership, it appears that Scott, as an active
manager, would be entitled to deduct the interest, without
limitation, on the debt incurred to purchase the stock as a
direct owner of the business. However, as a C corporation,
Russon Brothers is a separate taxpaying entity, distinguishable
from its owners. Cf., e.g., Moline Properties, Inc. v.
Commissioner, 319 U.S. 436 (1943). Russon Brothers owns the
mortuary business, not Scott and his fellow stockholders. Scott
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