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disposition of such asset are used for another expenditure or the
date on which the character of the first expenditure changes by
reason of a change in the use of the asset with respect to which
the first expenditure was capitalized. Sec. 1.163-8T(j)(1)(i),
Temporary Income Tax Regs., 52 Fed. Reg. 25004 (July 2, 1987).
Petitioners contend that the 1991 interest payment of
$268,027.48 is investment interest within the meaning of section
163(d)(3) that is deductible under section 163(a) subject to the
limitations of section 163(d). Respondent contends that the 1991
interest payment is not investment interest because petitioner
repaid the 1982 plan loan during 1985 when he made the 1985 stock
and real property transfer. Respondent further contends that,
assuming arguendo that the Court were to find that the 1982 plan
loan was not repaid during 1985, petitioners have failed to show
that the 1991 interest payment constitutes investment interest
because they failed to establish that the $130,000 of proceeds
from that loan are traceable to an investment expenditure from
June 4, 1982, the date on which the 1982 plan loan was made,
through October 4, 1991, the date on which petitioner made the
1991 principal payment and the 1991 interest payment. In the
alternative, respondent contends that, even if the Court were to
find that the 1991 interest payment constitutes investment
interest, either section 72(e) or section 72(p)(3) prohibits the
deduction of that interest.
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