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that give rise to separate Federal income tax consequences. The
latter item might be subject to section 1041; the former is not.
As noted above, although under certain circumstances
specific statutes control the Federal income tax consequences of
certain awards, judgments, or payments, the statutes do not
necessarily control the Federal income tax consequences of
interest paid to the taxpayer in connection with such awards,
judgments, or payments. See Kovacs v. Commissioner, 100 T.C. 124
(1993); Aames v. Commissioner, 94 T.C. 189 (1990); and
Tiefenbrunn v. Commissioner, 74 T.C. 1566 (1980). With respect
to interest, we see no reason why transactions subject to section
1041 should be treated any differently than transactions subject
to sections 104(a)(2) and 1033. Consequently, we conclude that
section 1041 has no application to the interest petitioner
received from Mr. Gibbs during the years in issue, and hold that
such interest must be included in her income in the year
received.
Petitioner suggests that if she is required to include the
interest in her income, taxpayers receiving "unstated" interest
under similar circumstances will receive an unfair tax advantage.
We view the hypothetical problem presented in her argument to be
one of proof rather than principle. We can envision a case where
the distinction between the payment of interest and the payment
of the underlying obligation is not clearly drawn. In such a
case the facts and circumstances might have to be examined to
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