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investment interest should be disallowed under section
163(d)(1).8
OPINION
A. General
The record in this case is confused, disorganized, and
fraught with inconsistent assertions and theories. Petitioners’
reporting of their activities and subsequent explanation of the
activities at trial created a muddle of incomprehensible
information. Respondent’s determination and assertions at trial
created further confusion.
While the determination and the record in this case have
made fact finding difficult, we nevertheless have carefully
reviewed this record to analyze the issues and make findings and
conclusions. We shall discuss in detail the inconsistencies as
we address each adjustment.
B. Schedule C Expenses
1. Sections 162(a) and 274(a)
Section 162(a) permits a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. An expense must be directly
connected with, or proximately result from, a trade or business
8 Respondent’s agent, before applying the limitation of
sec. 163(d)(1), calculated the amount of investment interest
deductions as $34,131 in 1990, $27,732 in 1991, and $28,388 in
1993.
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