Howard Howe and Janice Howe - Page 6




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          require no personal guaranty in their next lease.  We decide                
          whether a witness is credible based on objective facts, the                 
          reasonableness and consistency of the testimony, and the demeanor           
          of the witness.  See Quock Ting v. United States, 140 U.S. 417,             
          420-421 (1891); Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir.           
          1964), affg. 41 T.C. 593 (1964); Pinder v. United States, 330 F.2d          
          119, 124-125 (5th Cir. 1964).  We may discount testimony which we           
          find to be unworthy of belief, see Tokarski v. Commissioner, 87             
          T.C. 74, 77 (1986), but we may not arbitrarily disregard testimony          
          that is competent, relevant, and uncontradicted, see Conti v.               
          Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), affg. 99 T.C. 370           
          (1992) and T.C. Memo. 1992-616.  Petitioner's testimony was                 
          implausible.  We do not believe that petitioner prepaid rent in             
          1992 to induce action relating to a lease he began to negotiate in          
          1994 and that he signed in 1995.  The landlord did not testify.  We         
          conclude that petitioners had no substantial business purpose for           
          prepaying rent in 1992.3                                                    
               Petitioners contend that under Rev. Rul. 69-511, 1969-2 C.B.           
          24, they may deduct the rent they prepaid in 1992.  The                     
          Commissioner ruled in Rev. Rul. 69-511, supra, that a taxpayer may          
          deduct damages that the taxpayer paid to a lessor to cancel a lease         
          for a term of years when paid or accrued, depending on the                  

               3  In light of our conclusion, we need not decide whether              
          petitioner’s prepayment of rent materially distorted petitioners’           
          taxable income.                                                             





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