Gerald P. and Abbe L. Keane - Page 6

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          Pursuit of his medical practice is a profit generating business             
          activity which generates taxable income, and this, petitioner               
          argues, should entitle him to deductions under sections 162 or              
          163.  The interest incurred is not related to the repayment of              
          medical school tuition and expenses, petitioner argues; rather,             
          the agreement is an entirely new contract and should be examined            
          independently from the original scholarship agreement with DHHS.            
               Even if the payments under the agreement do not constitute             
          repayment of student loans, respondent argues they are repayments           
          of a qualified scholarship under section 117, meaning that                  
          interest payments incurred during repayment are not deductible              
          because they are directly related to the production of tax-exempt           
          income and are subject to the nondeductibility limitations of               
          section 265.                                                                
               The issue for decision is whether petitioner may deduct the            
          interest portion of the payments he made pursuant to the                    
          settlement agreement with DHHS in 1987.  Deductions are strictly            
          a matter of legislative grace, and petitioner must prove his                
          entitlement to any deductions claimed.  Rule 142(a); INDOPCO,               
          Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice              
          Co. v. Helvering, 292 U.S. 435, 440 (1934).  If petitioner can              
          prove the interest payments were an expense incurred in carrying            
          on his trade or business, he may be entitled to business expense            
          deductions under section 162.  Alternatively, if petitioner can             





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