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principal and interest due on loan No. 10398/111752. No amount
was separately designated for principal or interest. As of
March 28, 1990, the principal portion of the note was as follows:
Principal balance from loan No. 10398/100160 $439,323
Amount advanced for Overland Trail property 650,000
Payoff of loan No. 10626/68956 168,978
Payoff of principal of loan No. 10398/105886 97,779
Funds advanced to petitioner 30,000
Loan fees 681
Total 1,386,761
Petitioner, in his 1990 Federal income tax return, deducted
investment interest expense in the amount of $156,441.6 Respon-
dent disallowed this deduction. Additionally, respondent deter-
mined that petitioner realized income of $404,210, the difference
between the outstanding balance of $2,204,210 and the $1,800,000
actually paid by petitioner.
The T.J. Cinnamons Bakery Franchise
On November 30, 1987, petitioner entered into an agreement
to purchase the assets of a T.J. Cinnamons Bakery franchise
located in San Antonio, Texas. T.J. Cinnamons Bakery is a
company that specializes in bakery products. Petitioner paid
$60,000 to acquire the business and assumed a note in the amount
of $181,058.
Shortly after the transaction was consummated, petitioner
discovered that the seller had given him inaccurate financial
6The amount of the deduction was limited to petitioner's net
investment income.
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