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1988 Investment Interest Deduction
For 1988, petitioners assert that the Takaos are entitled to
an investment interest deduction in the amount of $49,299, for
the accrued interest payment of $55,323.18 they made in 1988 on a
loan Pier 29 made to Norager. Petitioners maintain that the
balance of the interest payment may be carried over to 1989.
Respondent contends that petitioners have not established
that Yoshinori had any relationship to the "special account" from
which Nakamura paid the $55,323. Respondent contends further
that petitioners have not shown that the Takaos owed any money to
Pier 29. Respondent additionally asserts that petitioners have
failed to establish that the claimed interest constitutes
investment interest.
It has long been established that for interest to be
deductible under section 163(a), the interest must be on the
indebtedness of the taxpayer and not the indebtedness of another.
Borchert v. United States, 757 F.2d 209, 211 (8th Cir. 1985);
Golder v. Commissioner, 604 F.2d 34, 35 (9th Cir. 1979), affg.
T.C. Memo. 1976-150; Smith v. Commissioner, 84 T.C. 889, 897
(1985), affd. without published opinion 805 F.2d 1073 (D.C. Cir.
1986); Rushing v. Commissioner, 58 T.C. 996 (1972). Nakamura
presented conflicting testimony regarding who was liable on the
note, Norager, a corporation, or Yoshinori and himself.
Moreover, it appears that the assets acquired with the loan
proceeds belonged to Norager, not to the Takaos. Thus,
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