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(1980). The Court of Appeals for the Third Circuit, however, has
held that if, at the time the interest is paid, the taxpayer has
a fixed, noncontingent, legal obligation to pay the interest and
reimbursement is barred by bankruptcy, the taxpayer is entitled
to an interest expense deduction. See Stratmore v. Commissioner,
785 F.2d 419, 423 (3d Cir. 1986), revg. T.C. Memo. 1984-547.
Under Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd.
445 F.2d 985 (10th Cir. 1971), we are obligated to follow the law
as stated by the Court of Appeals in the circuit to which this
case is appealable. Petitioners have failed, however, to
establish that, at the time the interest was paid, they had a
primary legal obligation to pay the interest. In addition, they
have failed to establish that Sandew was bankrupt and that
reimbursement of the interest payments was barred by Sandew's
bankruptcy. Accordingly, we sustain respondent's determination.
Contentions we have not addressed are irrelevant, moot or
meritless.
To reflect the foregoing and concessions by the parties,
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011