- 26 -
We also point out that petitioners’ method of estimating
their expenses fails to establish the precise amount of the
interest reserves set up in the various loans upon which they
rely. Given this failure and the possibility apparent from the
testimony at trial that additional interest reserves, apart from
those established in the record, might have been set up, adopting
petitioners’ method might result in a double-counting of
deductible expenses.21 This provides us all the more reason for
rejecting petitioners’ method of estimating their construction
and interest expenses.
Relatedly, petitioners also claim additional interest
expense on the land loan from Pacific for the period December 1,
1988, to July 28, 1989, estimated on the basis of the “G” rates
for that period. First, as above, we are not inclined to accept
21As we discussed above, petitioners attempt to estimate
their construction expenses by referencing the amounts of the
construction and other loans. They argue that the entire amount
of those loans represents construction expenses that are
deductible or increase their basis in the project. With respect
to their claims of additional interest expenses, they rely on the
Federal “G” rates to estimate the interest that accrued on, and
was paid with respect to, the construction and other loans.
However, there is evidence and testimony that interest reserves,
other than those reserves which petitioners account for on brief,
might have been set up in the various loans. Allowing the
construction loans as an estimate of the construction expenses,
as petitioners argue, and allowing these additional interest
expenses would result in a double deduction, if in fact
additional interest reserves were set up and these supposed
additional interest expenses were paid from those reserves.
Petitioners have failed to preclude this possibility in the
reconstruction of their construction and interest expenses.
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011