Andrew E. Blanche, Jr., and Cynthia D. Blanche - Page 11

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          In Golder v. Commissioner, supra, the Court of Appeals for the              
          Ninth Circuit, in affirming the Tax Court, stated that section              
          1.163-1(b), Income Tax Regs., does not create an exception to the           
          rule of section 163(a) that interest is deductible only with                
          respect to the indebtedness of the taxpayer but, rather, simply             
          recognizes the economic substance of nonrecourse borrowing.                 
               Additionally, as required by section 1.163-1(b), Income Tax            
          Regs., the taxpayer must be the "legal or equitable owner" of the           
          property.  Where the taxpayer has not established legal,                    
          equitable, or beneficial ownership of mortgaged property, the               
          courts generally have disallowed the taxpayer a deduction for the           
          mortgage interest.  See Bonkowski v. Commissioner, T.C. Memo.               
          1970-340, affd. 458 F.2d 709 (7th Cir. 1972); Song v.                       
          Commissioner, T.C. Memo. 1995-446; Estate of Broadhead v.                   
          Commissioner, T.C. Memo. 1966-26, affd. 391 F.2d 841, 848 (5th              
          Cir. 1968).                                                                 
               This record reflects that petitioners had no legal                     
          obligation to Lomas Mortgage with respect to the Foxbriar                   
          property until August 1992.9  Until such time, only the Hewitts             

               9    In the notice of deficiency, respondent allowed                   
          petitioners a deduction for qualified residence interest paid by            
          petitioners in connection with the Foxbriar property from August            
          through December 1992.  However, since the amount of such allowed           
          interest deduction, coupled with the other allowed itemized                 
          deductions for 1992, failed to exceed the standard deduction,               
          petitioners were allowed the standard deduction for that year.              

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