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compensation for use or forbearance of money on
indebtedness within the meaning of I.R.C. Section 163.
Furthermore, if it is established that any portion
of the above disallowed "interest" is a properly
allowable deduction, it is further determined that such
interest constitutes interest in investment
indebtedness and deduction of such amounts is limited
under the provisions of I.R.C. 163(d).
Further, and in support of a portion of the
determined deficiency, if you establish that you are
entitled to the above-mentioned interest deduction, it
is determined that you improperly failed to report the
income resulting from the same transaction.
2. It is determined that part of the underpayment of
tax for the taxable year 1978 is due to your negligent
or intentional disregard of the rules and regulations.
Consequently, the 5 percent addition to the tax is
charged for 1978 as provided by Section 6653(a) of the
Internal Revenue Code.
A simple arithmetical calculation reveals that respondent
computed petitioners' tax deficiency by applying a tax rate of 70
percent, which was the highest tax rate imposed for 1978.4
On July 12, 1982, Lu N. Nevels, Jr., Esq., filed a joint
petition for redetermination (assigned docket No. 17445-82) on
behalf of a large group of taxpayers, including petitioners, who
had received notices of deficiency with Kersting-related
4 Inasmuch as there were no other adjustments in the notice
of deficiency, and assuming that the adjusted gross income that
petitioners reported is correct, respondent erred in computing
petitioners' tax liability for 1978 using a 70-percent tax rate,
which was only applicable with respect to taxable income
exceeding $203,200 for joint filers.
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