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Neither side contends that we should distinguish between the
factual settings presented in our two prior opinions on this
subject. Apart from respondent’s alternative contention as to
the 1987 Schedule A adjustments, respondent apparently accepts
that, if the regulations are not valid, then the interest expense
resulting from the 1987 Schedule C adjustments is properly a 1995
Schedule C deduction.
B. Summary of Conclusions
We agree with respondent’s primary position and much of
respondent’s analysis.
Section 162(a) allows a deduction for “all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business”; this includes interest.
Section 163(a) allows a deduction for “all interest paid or
accrued within the taxable year on indebtedness”; this is allowed
even if the interest would not be deductible under section
162(a). Notwithstanding this broad allowance language there are
statutory limitations on amounts (e.g., sec. 163(d), relating to
investment interest) and prohibitions (e.g., sec. 163(f),
relating to registration-required obligations), that override not
only section 163, but all of chapter 1 (sec. 163(d)(1)) or even
“any other provision of law” (sec. 163(f)(1)).
In the instant case we focus on the prohibition in section
163(h)(1), prohibiting any deduction under chapter 1 for
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