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rule of subsection (a). As applicable to 1995, the year before
us, section 163(h) provides, in pertinent part, as follows:
SEC. 163. INTEREST.
* * * * * * *
(h) Disallowance of Deduction for Personal Interest.--
(1) In general.–-In the case of a taxpayer other
than a corporation, no deduction shall be allowed under
this chapter [chapter 1, relating to normal taxes and
surtaxes] for personal interest paid or accrued during
the taxable year.
(2) Personal interest.–-For purposes of this
subsection, the term “personal interest” means any
interest allowable as a deduction under this chapter
other than–-
(A) interest paid or accrued on indebtedness
properly allocable to a trade or business (other
than the trade or business of performing
services as an employee),
(B) any investment interest (within the
meaning of subsection (d)),
(C) any interest which is taken into account
under section 469 in computing income or loss
from a passive activity of the taxpayer,
(D) any qualified residence interest within
the meaning of paragraph (3)), and
(E) any interest payable under section 6601
on any unpaid portion of the tax imposed by
section 2001 for the period during which an
extension of time for payment of such tax is in
effect under section 6163 or 6166 or under
section 6166A (as in effect before its repeal by
the Economic Recovery Tax Act of 1981).
Petitioners contend that the interest they paid in respect
of their 1987 income tax underpayment falls within the terms of
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