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section 163(h)(2)(A); they do not contend that their interest
payment falls within the terms of any of the other subparagraphs
of section 163(h)(2). Accordingly, we focus on section
163(h)(2)(A).
E. History of the Legislation (See Appendix infra.)
In November 1984, the Treasury Department issued a report to
the President recommending numerous revisions of the tax laws.
One of the proposals was designed to
curtail the subsidy implicit in the [then] current law
deduction of interest on debt to finance large amounts of
passive, tax-preferred, investment assets (such as corporate
stock) or extraordinary consumption expenditures (such as
second homes).
In May 1985, President Reagan issued a report which included
a proposal to subject “all interest not incurred in connection
with a trade or business” to the section 163(d) limitations on
investment interest.
The House bill followed the President’s proposal in that it
would impose a limit on deductibility of “nonbusiness interest”.
The latter term was defined to exclude “any interest which is
allowable as a deduction in computing adjusted gross income”.
The Ways and Means Committee report stated that “Interest expense
that is paid or incurred in carrying on a trade or business * * *
is not subject to the interest deduction limitation under the
bill.” H. Rept. 99-426 at 298, 1986-3 C.B. (Vol. 2) 1, 298.
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