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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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