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their behalf. According to petitioners, this amount is not
includable in their gross income because the Turners paid the
interest directly to Union Planters.
We agree with respondent. Contrary to petitioners'
assertion, the Turners did not pay Union Planters directly.
They remitted their payments to NBA, which collected the payments
on behalf of petitioners. NBA, in turn, remitted the payments to
Union Planters to apply to the debt owed it by petitioners.
Instead of requiring that the Turners obtain third-party
financing for their purchase of the home, petitioners personally
financed the Turners' purchase, allowing them to wrap their debt
to petitioners around the debt that petitioners already owed
Union Planters. In such a wraparound situation, petitioners'
gross income includes the interest that the Turners paid NBA on
petitioners' behalf. See sec. 1.61-7(a), Income Tax Regs.
2. Deductible Rental Loss
Respondent determined that petitioners were entitled to
deduct only $25,000 of the $73,129 loss that they reported for
Harris Enterprises. Respondent generally determined that
petitioners had not substantiated $42,955 of the expenses which
went into the reported loss, and, with respect to the recomputed
loss of $30,174, that petitioners were limited by section 469
from deducting currently more than $25,000. Petitioners argue
that they should be allowed to deduct the reported loss in full.
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