- 14 -
uncontroverted testimony which was corroborated by the interest
statement from the bank. Consequently, we conclude that
petitioners are entitled to an interest expense deduction in the
amount of $74,722.55 for their taxable year 1988.
The next issue to be decided is whether the loan from the
pension plan is a taxable distribution to petitioners pursuant to
section 72(p)(1)(A).8 As stated in our findings, on or about
March 14, 1986, the pension plan made a loan to petitioner in the
amount of $50,000, which was to be repaid on April 1, 1988, with
interest at the rate of 13.75 percent per annum (the original
loan). On the due date of the original loan, the principal and
interest on the original loan were not paid but were instead
rolled over into a new loan (the renewed loan). Neither the
original loan nor the renewed loan contained a provision for
"level amortization" of the principal. At all relevant times,
8 Respondent raised this issue at trial, and petitioners
waived their objection to the trial of the issue. Consequently,
the issue was tried by consent pursuant to Rule 41(b).
Respondent argues that, as the pension issue affects the loss
carryback from petitioners' 1988 taxable year to their 1987
taxable year that petitioners raised at trial, petitioners bear
the burden of proof as to the issue. Additionally, respondent
contends that, as the notice of deficiency treated the accrued,
unpaid interest on the pension plan loan as a taxable
distribution to petitioners, the issue is not a new matter for
which respondent bears the burden of proof pursuant to Rule
142(a). We disagree. In the notice of deficiency, the principal
amount of the loan is not included as an adjustment to
petitioners' income. Consequently, we conclude that the issue is
a "new matter" within the meaning of Rule 142(a), on which issue
respondent bears the burden of proof.
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