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investment interest" in the amount of $30,000 on Schedule A--
Itemized Deductions for 1990. On the return he filed for 1990,
Nakamura reported $30,000 interest income from Yoshinori. The
payment purportedly consisted of (1) interest on a loan from
Nakamura to the Takaos to enable Yoshinori to make a payment on a
loan he owed his sister, Sachiko Hada (Hada), and (2) service
charge interest. The record is silent as to the purpose of the
Hada loan or the nature of the transaction for which the service
charge interest was calculated. On April 1, 1990, the Takaos and
Nakamura signed a promissory note in which the Takaos promised to
pay Hada $117,000 in two payments, with the first payment of
$40,000 due on or before August 17, 1990, and the second payment
of $77,000 due on or before August 17, 1991. Nakamura agreed to
secure payment on the loan. No interest was due on the loan if
timely principal payments were made. Subsequently, on August 17,
1990, Yoshinori signed a note promising to pay Nakamura $32,000,
with interest at the rate of 1.25 percent per month, computed
from and after August 17, 1990. The note specified that Nakamura
could designate payments on the note as an application of accrued
interest. The note indicated that proceeds from the loan from
Nakamura would be used for the first payment of the "Hada loan".
For 1991, the Takaos filed Form 4952, Investment Interest
Expense Deduction, with their tax return on which is reflected
"Investment interest expense paid or accrued in 1991" in the
amount of $13,850, "Investment interest expense deduction" in the
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