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Section 163(h)(2)(A) provides that interest paid on
indebtedness properly allocable to a trade or business does not
constitute personal interest. In section 163 no distinction is
made between interest paid on business-related indebtedness owed
by individual taxpayers and interest paid on business-related
indebtedness owed by other types of taxpayers.
Respondent’s temporary regulation, however, provides that
interest paid specifically on income tax liabilities of
individuals, regardless of the source of the income or other
adjustments to which the tax liabilities relate, is to be treated
as personal interest. Sec. 1.163-9T(b)(2)(i)(A), Temporary
Income Tax Regs., 52 Fed. Reg. 48409 (Dec. 22, 1987).
Respondent argues that because the $1,527,695 in interest
that petitioners paid to respondent in 1996 relates to
petitioners’ individual income tax liabilities, under section
1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., supra, that
interest should be treated as nondeductible personal interest.
Petitioners contend that section 1.163-9T(b)(2)(i)(A),
Temporary Income Tax Regs., supra, is invalid, that section
163(h)(2)(A) calls for an allocation of interest paid between
business and nonbusiness interest without discrimination against
taxpayers who are individuals, and that because the income giving
rise to petitioners’ tax liabilities for 1982 through 1988 is
indisputably allocable to petitioner’s trade or business (namely,
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