Srichai and Pusadee Rungrangsi - Page 16

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          business loan) and Ms. Finkelstein (for the restaurant acquisition          
               Section 163 generally allows the deduction of interest paid on         
          indebtedness during the taxable year.  Section 163(d)(1) limits the         
          deduction for investment interest to the extent of net investment           
          income.  Investment interest means interest paid on indebtedness            
          allocable to property held for investment.  Sec. 163(d)(3)(A).              
          Property held for investment includes any interest held by the              
          taxpayer involving the conduct of a trade or business which is not          
          passive activity and with respect to which the taxpayer did not             
          materially participate.  Sec. 163(d)(5)(A)(ii).  Net investment             
          income means investment income (gross income from property held for         
          investment and net gain from the disposition of property held for           
          investment) over investment expenses.  Sec. 163(d)(4)(A) and (B).           
               Petitioners have not shown that they received any offsetting           
          investment income during 1992 or 1993.  Thus, they are not entitled         
          to a deduction for investment interest expenses for those years.            
          Cf. Scott v. Commissioner, T.C. Memo. 1997-507.  Arguably, the              
          interest expenses paid by petitioners were not for investment               
          interest, but were instead for interest indebtedness incurred in            
          the operation of a trade or business and which is not subject to            
          limitation under section 163.  See King v. Commissioner, 89 T.C.            
          445, 463 (1987); Paoli v. Commissioner, T.C. Memo. 1988-23.  But if         
          the interest expenses were for trade or business indebtedness, such         

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