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properly allocable to a trade or business (other than the trade
or business of performing services as an employee)”. Sec.
163(h)(2)(A). Based on this definition of “personal interest”
that the Congress set forth, the appropriate inquiry in the
instant case is not whether petitioners’ interest on their 1987
income tax deficiency is “personal” but whether it is “properly
allocable to a trade or business”.
(3) The Pre-TRA 1986 Cases
In Redlark v. Commissioner, 106 T.C. at 34-35, we opened our
discussion of the law as it stood before enactment of TRA 1986 as
follows:
The question remains, however, whether the elements giving
rise to the deficiencies to which the interest herein
relates are of such a nature as to permit such interest to
constitute a business expense within the meaning of section
162(a), and therefore of section 62(a), and, as a result, to
be characterized as interest “on indebtedness properly
allocable to a trade or business” within the meaning of
section 163(h)(2)(A)3 in the event that the temporary
regulation is not applicable. We think a review of the
cases decided prior to the enactment of section
163(h)(2)(A), in respect of the deductibility of interest on
income tax deficiencies as a business expense, will throw
light on this question and is therefore a significant
element in our analysis of the impact of that section on
petitioners’ claimed interest deduction. It is to that
review that we first turn our attention.
________________
3 Sec. 163(h)(2)(A) was amended by sec. 1005(c)(4) of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L.
100-647, 102 Stat. 3342, 3390.
Sec. 163(h)(2)(A), as originally enacted in 1986,
provided:
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