Robert W. and Janet L. Carlson - Page 1

                                   112 T.C. No. 17                                    

                               UNITED STATES TAX COURT                                

                   ROBERT W. AND JANET L. CARLSON, Petitioners v.                     
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket Nos.  8907-97, 23135-97.    Filed April 30, 1999.               

                    P is a shareholder of A, an S corporation.  A is                  
               engaged in the business of selling residential timeshare               
               units to individuals on an installment basis.  A elected               
               under sec. 453(l)(3)(A), I.R.C., to report installment sale            
               income under the installment method.  P, in his capacity as            
               a shareholder, paid additional tax equal to the interest on            
               the amount of tax deferred as a result of A's use of the               
               installment method, as required under sec. 453(l)(3)(A),               
               I.R.C.  Pursuant to sec. 453(l)(3)(c), Ps deducted the                 
               payment as interest on their joint Federal income tax                  
               returns for 1993, 1994, 1995, and 1996.  R disallowed the              
               interest deductions in full on the basis that the interest             
               constituted nondeductible personal interest under sec.                 
               163(h)(2)(A), I.R.C. and sec. 1.163-9T(2)(i)(B), Temporary             
               Income Tax Regs., 52 Fed. Reg. 48409 (Dec. 22, 1987).                  
                    Held: Ps may not deduct the sec. 453(l)(3)(A), I.R.C.,            
               interest on the tax incurred by P on installment sales of              

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