William J. Phillips, Jr. and Matrona A. Phillips - Page 8




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          responsibility to allocate 10 percent of the distribution to                
          their current year’s tax liability.  We disagree.                           
               This Court follows the rule that in the case of involuntary            
          payments, respondent is free to apply the payments as he may                
          choose.  Amos v. Commissioner, supra at 69; see also United                 
          States v. Pepperman, 976 F.2d 123, 127 (3d Cir. 1992).  The                 
          payment made here in compliance with a levy was involuntary.                
          Amos v. Commissioner, supra.  In short, respondent was entitled             
          to apply the entire amount received from the levy to petitioner-            
          husband’s section 6672 liability.                                           
          4. Deduction of Loss from Dynatrex, Inc.                                    
               Petitioners argue that they are entitled to a so-called                
          pass-thru loss deduction under section 1366 for payment of a                
          portion of petitioner-husband’s section 6672 liability.                     
          Petitioners’ theory is that a payment in 1997 of a portion of               
          Dynatrex, Inc.’s employment tax liability would be deductible by            
          Dynatrex, Inc., and, since it had no income for 1997, Dynatrex,             
          Inc., as an S corporation, would have a loss that would pass                
          through to the shareholders of Dynatrex, Inc.                               
               Initially, we observe that generally a taxpayer may not                
          deduct payments made pursuant to a section 6672 liability as an             
          ordinary and necessary business expense under section 162, Smith            
          v. Commissioner, 34 T.C. 1100 (1960), affd. per curiam 294 F.2d             
          957 (5th Cir. 1961); Patton v. Commissioner, 71 T.C. 389 (1978),            






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