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to petitioner's case.5 Petitioner maintains that the settlement
of his claim with DHHS was a decision made out of concern for his
private medical practice, and thus payments made pursuant to the
agreement are in pursuit of his trade or business. This is
essentially the same argument he makes in support of
deductibility under section 162.
Similar to our section 162 analysis, interest on
indebtedness must be allocated in the same manner as its
underlying debt. Sec. 1.163-8T, Temporary Income Tax Regs., 52
Fed. Reg. 24999 (July 2, 1987). Underlying debt is allocated by
tracing specific disbursements of the proceeds to specific
expenditures. Sec. 1.163-8T, Temporary Income Tax Regs., 52 Fed.
Reg. 24999 (July 2, 1987). If the underlying debt is incurred as
a personal expenditure, the interest on that debt may not be
deducted under section 163. Sec. 1.163-8T(a)(4)(ii), Ex. 1,
Temporary Income Tax Regs., 52 Fed. Reg. 25000 (July 2, 1987).
Personal expenditures are defined in the Temporary Income
Tax Regs., section 1.163-8T(b)(5), 52 Fed. Reg. 25000 (July 2,
1987), as any expenditure that is not a trade or business
expenditure, a passive activity expenditure, or an investment
5The record is devoid of facts or argument which suggests
that petitioner's indebtedness interest is allocable to property
held for investment, sec. 163(h)(2)(B), passive activity, sec.
163(h)(2)(C), a qualified residence, sec. 163(h)(2)(D), or
interest on any unpaid portion of tax imposed by sec. 2001, sec.
163(h)(2)(E).
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