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and (2) section 1.163-9T(b)(2)(i)(A), Temporary Income Tax
Regs.,17 52 Fed. Reg. 48409 (Dec. 22, 1987). See Redlark v.
16(...continued)
proceeds are disbursed to the taxpayer, the debt is treated
for purposes of this section as if the taxpayer used an
amount of the debt proceeds equal to the balance of the debt
outstanding at such time to make an expenditure for such
property, services, or other purpose.
17 Sec. 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs.,
supra, provides as follows:
Sec. 1.163-9T Personal interest (temporary).
* * * * * * *
(b) Personal interest–-
* * * * * * *
(2) Interest relating to taxes–-(i) In general. Except
as provided in paragraph (b)(2)(iii) of this section,
personal interest includes interest–-
(A) Paid on underpayments of individual Federal, State
or local income taxes and on indebtedness used to pay such
taxes (within the meaning of sec. 1.168-8T), regardless of
the source of the income generating the tax liability.
* * * * * * *
(ii) Example.
A, an individual, owns stock of an S corporation. On
its return for 1987, the corporation underreports its
taxable income. Consequently, A underreports A’s share of
that income on A’s tax return. In 1989, A pays the
resulting deficiency plus interest to the Internal Revenue
Service. The interest paid by A in 1989 on the tax
deficiency is personal interest, notwithstanding the fact
that the additional tax liability may have arisen out of
income from a trade or business. The result would be the
same if A’s business had been operated as a sole
proprietorship.
(continued...)
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