Gerald P. and Abbe L. Keane - Page 5

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          grounds that they were neither business expenses under section              
          162 nor deductible interest expenses under section 163.                     
                                       OPINION                                        
               Respondent contends that the interest payments on the                  
          promissory note are nondeductible personal expenses.  The                   
          interest accrued on funds that were characterized in the                    
          promissory note as petitioner's "medical school tuition and                 
          expenses".3  Therefore, respondent argues that these payments are           
          of a personal nature and do not qualify as either section 162               
          business expenses or section 163 interest expenses.                         
               Petitioner's position is that the interest payments are                
          deductible business expense because settlement of his claim with            
          DHHS allowed petitioner to avoid his medical service obligation             
          thereby enabling him to devote more time to his medical practice.           


               3The Settlement Agreement and Mutual Release signed on                 
          behalf of the Secretary and the petitioner states:                          
                    1.  Dr. Keane shall pay to the Secretary the principal            
               sum of one hundred twenty-five thousand dollars                        
               ($125,000.00), (representing forty-five thousand eight                 
               hundred and five dollars ($45,805.00) in original principal            
               (i.e., the monies expended on Dr. Keane's behalf for his               
               medical school tuition and expenses), plus previously                  
               accrued interest totaling seventy-nine thousand one hundred            
               ninety-five dollars ($79,195.00) claimed by the Secretary              
               under 42 U.S.C. Section 254o(b)(1)), plus additional                   
               interest on the unpaid balance compounded at the rate of               
               seven and twenty-two one-hundreths [sic] percent (7.22%) per           
               annum, in a single lump-sum payment plus quarterly                     
               installments as set forth in the Promissory Note which is              
               appended to this Agreement as Attachment 1. [Emphasis                  
               added.]                                                                




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