- 7 -
that he had a separate card for personal use. The charges on the
MBNA statements are for business meals, as we have previously
determined, cellular phone, gas, and other such items. However,
there are some charges that may or may not be business related.
Petitioner's bookkeeper testified that she actually generated all
the checks. We found her to be a credible witness.
Petitioner had a balance of more than $37,000 in his MBNA
credit card account on January 1, 1995. Petitioner paid a total
of $33,715 to MBNA in 1995. We believe that many of the charges
on the MBNA credit card account were for business expenses under
section 162 and that interest was paid in 1995, as well as much
of the debt. However, there is no evidence that $19,113 of the
$33,715 paid to MBNA was for interest, not debt. Moreover,
respondent allowed petitioner an interest deduction of $7,000.
This amount roughly corresponds to 16.9 percent interest, the
interest rate on the MBNA card, applied to an average balance of
$37,000 for one year. Because petitioner was carrying the
$37,000 balance in the prior year and was making minimal
payments, it is likely that additional interest accumulated which
was paid off in 1995 when petitioner made the larger payments to
MBNA. Accordingly, under Cohan v. Commissioner, supra, we allow
petitioner to deduct $2,000 of interest in addition to the amount
allowed by respondent and sustain respondent's disallowance to
the extent of $17,113.
Petitioner also filed a Schedule F for an apple and timber
farm located on Palomar Mountain. The farm was acquired by
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011