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Petitioner failed to file timely Federal income tax returns
for the taxable years 1992 and 1993. On November 13, 1995,
respondent issued separate notices of deficiency to petitioner
for the 1992 and 1993 taxable years. On February 9, 1996,
petitioner submitted Federal income tax returns (Forms 1040) for
the taxable years 1992 and 1993. On Schedules A of the Forms
1040, petitioner deducted $51,339.28 and $42,410.72 as investment
interest for 1992 and 1993, respectively.
OPINION
After concessions, the principal issue in this case involves
the application of sections 163 and 1041 to interest that
petitioner paid in 1992 and 1993 on indebtedness to his former
spouse. Section 163(a) provides the general rule that there
shall be allowed as a deduction all interest paid or accrued
within the taxable year on indebtedness. However, as an
exception to this general rule, section 163(h)(1) provides that
in the case of a taxpayer other than a corporation, no deduction
shall be allowed for personal interest which is paid or accrued
during the taxable year. Pursuant to section 163(h)(2), personal
interest does not include interest which is investment interest,
interest which is taken into account under section 469 in
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