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C. Whether Petitioners May Deduct the Interest That They
Claimed on Their Schedules F as Farm-Related Interest
1. Whether the Interest Was Related to Farming
Respondent points out that petitioners commingled funds and
did not keep accurate records. Respondent contends that
petitioners have not shown that the interest that they deducted
on their Schedules F for 1990 related to farming. We disagree.
Petitioner credibly testified that he used his loans from
New-East Bank, Bank of Stanley, Southern National Bank, and First
Citizens Bank for his farm operations. Thus, we hold that
petitioners properly deducted the interest remaining at issue
that they paid to those banks for farm interest. Petitioners may
not deduct as farm interest the interest they paid to First
Hanover Bank because petitioners have not shown that they used
the loans from First Hanover Bank for farming. Thus, that
interest is personal interest.
Respondent contends that we should not rely on petitioner's
testimony because it is self-serving. We disagree. We decide
whether a witness is credible based on objective facts, the
reasonableness of the testimony, the consistency of statements
made by the witness, and the demeanor of the witness. Quock Ting
v. United States, 140 U.S. 417, 420-421 (1891); Wood v.
Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.
593 (1964); Pinder v. United States, 330 F.2d 119, 124-125 (5th
Cir. 1964); Concord Consumers Hous. Coop. v. Commissioner, 89
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