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promissory notes issued by EA 84-III to CSL constitutes a
bona fide debt.
Nonrecourse Promissory Notes
Generally, a taxpayer is allowed to deduct an amount
as interest under section 163(a) if the amount was paid or
incurred during the taxable year with respect to genuine
indebtedness. See, e.g., Knetsch v. United States, 364
U.S. 361 (1960); Lukens v. Commissioner, 945 F.2d 92, 97
(5th Cir. 1991), affg. T.C. Memo. 1990-87; Fox v.
Commissioner, 80 T.C. 972, 1019 (1983), affd. sub nom.
Barnard v. Commissioner, 731 F.2d 230 (4th Cir. 1984);
Hager v. Commissioner, 76 T.C. 759, 773 (1981). Similarly,
a taxpayer is allowed to include purchase money indebted-
ness in the basis of an asset for purposes of computing
the allowance for depreciation under section 167 if the
indebtedness is genuine indebtedness and represents an
actual investment in property. See, e.g., Brannen v.
Commissioner, 722 F.2d 695, 701 (11th Cir. 1984), affg. 78
T.C. 471 (1982); Siegel v. Commissioner, 78 T.C. 659, 684
(1982).
Indebtedness is not considered genuine, that is, a
true loan, if the facts show that the parties to the loan
did not intend the principal amount of the indebtedness to
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