Patrick E. Catalano - Page 1

                                 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,                  
                    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                     

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