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"'interest, dividends, annuities, or royalties not derived in the
ordinary course of a trade or business', sometimes known as
portfolio income." Russon v. Commissioner, supra at 267 (quoting
section 469(e)(1)).
Interest expense on a debt generally is allocated in the
same manner as the debt to which the interest expense relates is
allocated. Debt is allocated by tracing disbursements of the
debt proceeds to specific expenditures. Seymour v. Commissioner,
109 T.C. 279, 282-283 (1997); Hickman v. Commissioner, T.C. Memo.
1997-545; sec. 1.163-8T(a)(3), Temporary Income Tax Regs., 52
Fed. Reg. 24999 (July 2, 1987). Interest expense allocated to an
investment expenditure is treated for purposes of section 163(d)
as investment interest. Sec. 1.163-8T(a)(4)(i)(C), Temporary
Income Tax Regs., 52 Fed. Reg. 25000 (July 2, 1987). The term
"investment expenditure" means an expenditure (other than a
passive activity expenditure) properly chargeable to capital
account with respect to property held for investment within the
meaning of section 163(d)(5)(A) or an expenditure in connection
with the holding of the property. Sec. 1.163-8T(b)(3), Temporary
Income Tax Regs., 52 Fed. Reg. 25000 (July 2, 1987). Debt is
allocated to expenditures in accordance with the use of the debt
proceeds. Sec. 1.163-8T(c)(1), Temporary Income Tax Regs., 52
Fed. Reg. 25000 (July 2, 1987).
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