T.C. Memo. 2000-82
UNITED STATES TAX COURT
PATRICK E. CATALANO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12837-98. Filed March 9, 2000.
P, a lawyer and owner of a law firm, purchased a
residence in 1988, which he financed in part by a
nonrecourse loan secured by a lien on the residence.
In 1994, P was named as a defendant in a number of law
suits arising from his law practice and filed for
ch. 11 bankruptcy protection. In January 1995, the
bankruptcy court released P’s residence from the automatic
stay imposed by the bankruptcy. Later that year, the lender
foreclosed on P’s residence.
1. Held: At the time of foreclosure P’s residence
belonged to him, not the bankruptcy estate; thus P is
deemed to have paid all of the accrued and unpaid
mortgage interest on the nonrecourse indebtedness.
2. Held, further, P’s personal bankruptcy was
proximately caused by liabilities arising from his law
firm; thus, he may deduct an allocable portion of his
bankruptcy fees as a business expense under sec. 162,
I.R.C.
3. Held, further, P is not liable for an
accuracy-related penalty under sec. 6662(b)(2), I.R.C.,
because he acted with reasonable cause and in good
faith.
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