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royalties not derived in the ordinary course of a trade or
business.
Petitioners reported investment income of $52,345 in 1990,
$40,770 in 1991, and $62,239 in 1993. We held above that
petitioners underreported interest and dividends of $95 in 1990,
$5,493 in 1991, and $253 in 1993. The omitted amounts constitute
investment income, and the actual amounts of investment income
reportable by petitioners are $52,440 for 1990, $46,263 in 1991,
and $62,492 in 1993. Petitioners claimed investment interest
expenses of $34,265 in 1990, $41,232 in 1991, and $30,662 in
1993. For all of the years at issue, the net investment income
exceeds the claimed investment interest expenses. Therefore,
petitioners may deduct investment interest expenses of $34,265 in
1990, $41,232 in 1991, and $30,662 in 1993.
E. Investment Tax Credit
Petitioners claimed an investment tax credit of $3,151 in
1993. Sections 38 and 46 provide for the allowance of a business
credit, which in part is comprised of the investment credit. See
sec. 38(a). The investment tax credit is the sum of the
rehabilitation credit, energy credit, and reforestation credit.
See sec. 46.
Although respondent argues that petitioners are not entitled
to an investment tax credit of $3,215 for 1993, respondent’s
notice of deficiency does not contain an adjustment to income tax
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