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section 265(a)(2) applies to disallow a portion of the interest
deduction claimed by Waldorf II on the 1987 indebtedness.
Petitioner's assignments of error with respect to the two
issues we must decide go to the propriety of respondent’s
adjustments and not to the calculation of those adjustments if
they are appropriate. On brief, petitioner objects to
respondent’s proposed finding of fact as to the interest
adjustments in question by stating that the amounts set forth in
respondent’s proposed finding of fact “exceed the sum of the
amount disallowed pursuant to the statutory notice of deficiency
and the amended answer.” Petitioner does not otherwise challenge
respondent’s proposed finding with respect to the interest
adjustments in question or argue that they are in error (if,
indeed, section 265(a)(2) is applicable). By the amendment to
answer, respondent determined increased deficiencies on account
of increased adjustments resulting from the application of
section 265(a)(2). Respondent did not specify the amounts of the
increased adjustments. In the reply, petitioner denies any
increased deficiency but, otherwise, does not address the
increased adjustments in question. We assume that the parties
have a basis for calculating, and allocating, the section
265(a)(2) adjustments in question. We do not sustain any section
265(a) disallowance beyond that put at issue by the petition and
the answer, as amended.
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