- 4 - made the decision not to leave Stanford to fulfill his service obligation because he believed to do so would affect his standing in the program. DHHS thereafter regarded him as in default and liable to the United States for repayment of the scholarship money plus damages pursuant to a treble damages clause in the contract. Health Professional Educational Assistance Act of 1976, Pub. L. 94-484, sec. 408(b)(1), 90 Stat. 2243, 2286, 42 U.S.C. sec. 254o(b)(1) (Supp. IV, 1981). Petitioner, believing he was not in default, filed a civil suit in the United States District Court for the District of Columbia against the Secretary of DHHS in Keane v. Bowen, Civil Action No. 86-02574-SS. In October 1987, petitioner reached a settlement with DHHS, and the case was dismissed. Under the terms of the agreement, a promissory note was executed whereby petitioner agreed to pay $125,000 to DHHS representing the $45,805 in original principal and $79,195 in previously accrued interest. Additional interest on the unpaid balance was also due at the rate of 7.22 percent per annum. In taxable years 1991, 1992, and 1993, petitioners claimed Schedule C business deductions for the interest paid on the promissory note in the amounts of $7,249, $5,220, and $5,409, respectively. Respondent disallowed these deductions on thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
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