- 11 - 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. ScottPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011