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is silent as to the sources of the delinquent tax liabilities, we
sustain respondent's determination that the deductions for
interest reported on petitioners' 1995 Federal income tax return
are personal interest and not allowed.
Because we agree with respondent that petitioners failed to
prove that the interest expense was incurred on indebtedness
properly allocable to petitioners' trade or business or to their
investment activities, we need not and do not consider sec.
1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., 52 Fed. Reg.
48409 (Dec. 22, 1987), in this case.3
Addition to Tax
Respondent determined that petitioners are liable for an
addition to tax for 1995 pursuant to section 6651(a)(1), which
imposes an addition to tax for a taxpayer's failure to file a
required return on or before the date prescribed, including
extensions. The amount added to the tax under section 6651(a)(1)
is 5 percent for each month or fraction thereof during which the
return is late, up to a maximum of 25 percent. The addition to
tax is inapplicable, however, if the taxpayer's failure to file
3Sec. 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., 52
Fed. Reg. 48409 (Dec. 22, 1987), states that personal interest
includes interest "Paid on underpayments of individual Federal,
State or local income taxes and on indebtedness used to pay such
taxes (within the meaning of �1.168-8T), regardless of the source
of the income generating the tax liability". See Redlark v.
Commissioner, 106 T.C. 31 (1996), revd. 141 F.3d 936 (9th Cir.
1998).
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