- 17 -
104(a)(2). See, e.g., Kovacs v. Commissioner, supra; Smith v.
Commissioner, supra. Consequently, the $45,298 is not excludable
from the Nortons’ gross income.1
Issue 4. Deductibility of Deposit Into Controlled Savings Accounts
On September 28, 1993, the Nortons agreed to purchase
residential rental property in Big Lake, Alaska (Meadow Creek),
from the Federal Deposit Insurance Corporation (FDIC) for $115,000.
To finance the purchase of Meadow Creek, the Nortons borrowed
$85,000 from NBA. As a condition for making the loan, NBA required
the Nortons to deposit $15,000 in a controlled savings account
pending third-party certification that environmental concerns
regarding contamination by the previous owners of Meadow Creek had
been corrected. On November 26, 1993, the Nortons caused $15,000
to be deposited into the controlled savings account. In order to
have the funds released from this account, the Nortons had to
either request reimbursement for cleanup expenses or pay off the
loan in its entirety.
The Nortons incurred expenses in connection with removing
contaminated soil and replacing concrete floors and drains from the
Meadow Creek property. None of these expenses were paid in 1993.
1 The parties stipulated “that to the extent the Court
finds the prejudgment interest award taxable, the Nortons are
entitled to deduct, as an itemized deduction, the allocable
attorneys fees and court costs which were not paid by the
defendants in the Boehm lawsuit or otherwise reimbursed and which
have not been deducted either elsewhere on their return or in any
other year.”
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