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Petitioner received more property upon dissolution of the
marriage than did Linda Armacost, so he signed a promissory note
in the amount of $250,000 payable to Linda Armacost to equalize
the distribution of assets. The note was payable for 20 years,
at 10 percent interest. Linda Armacost also was granted a
security interest in the properties transferred to petitioner.
Petitioner made payments to Linda Armacost under the note,
and deducted the interest paid on his Federal income tax return
for taxable year 1992. Respondent disallowed the deduction on
the ground that the interest was nondeductible personal interest
under section 163(h)(2).
OPINION
Respondent contends that the interest on the note was
incurred for purposes of dividing community property incident to
divorce. Section 1041 provides that no gain or loss shall be
recognized on the transfer of property incident to divorce, and
the property is treated as having passed to the transferee by
gift. Respondent argues that the interest here is nondeductible
because the underlying debt is traced back to the divorce, a
personal purpose. This is essentially the same argument
respondent made in Seymour v. Commissioner, 109 T.C. 279 (1997).
In the Seymour case, the taxpayer incurred indebtedness to
his ex-spouse upon his divorce. Respondent disallowed his
interest deduction on the ground that section 1041 characterized
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