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to the balance of the debt outstanding at such
time to make an expenditure for such property,
services, or other purpose.
“In the case of deficiency interest, the
Government essentially extends credit to a taxpayer and
assesses interest for the extension of that credit.
Thus, when the underlying activity which creates the
deficiency relates to a taxpayer’s business, the
interest is ‘allocable’ to the business and deductible
under section 163(h)(2)(A).” [Quoting Allen v. United
States, 987 F. Supp. 460, 466 (D.C. N.C. 1997), revd.
173 F.3d 533 (4th Cir. 1999).] Since Temp. Reg. 1.163-
9T(b)(2)(i)(A) is in direct conflict with an earlier-
enacted regulation that also covers the deductibility
of deficiency interest related to a trade or business,
Temp. Reg. 1.163-9T(b)(2)(i)(A) cannot be considered a
reasonable interpretation of the statute. [Newmark &
Englebrecht, “Courts Split on Individuals’ Deficiency
Interest Deduction”, 62 Prac. Tax Strat. 87, 95 (1999);
fn. ref. omitted.]
With regard to the Blue Book to the 1986 Act, and its
peculiar origin, we noted in our original opinion, Redlark v.
Commissioner, 106 T.C. at 45 n.7, as follows:
[W]e also note that the Tax Reform Act of 1986, Pub. L.
99-514, 100 Stat. 2085, was enacted on Oct. 22, 1986,
during the 99th Congress, whereas the General
Explanation [the Blue Book] was published on May 4,
1987, during the 100th Congress. Thus, the General
Explanation is not even entitled to the respect it
might otherwise be accorded if it had been prepared for
the Congress which enacted sec. 163(h).
See also Allen v. Commissioner, 118 T.C. 1, 14-15 (2002),
involving the alternative minimum tax under section 55 and
commenting on the limited usefulness of the Blue Book applicable
to the 1986 Act. Further with regard to the Blue Book, see the
concurring opinion herein of Judge Thornton.
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