Peter U. and Mary M. Boehme - Page 2




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                    3.  Held, further, the $64,000 interest payment                   
               constituted the payment of nondeductible “personal                     
               interest” under sec. 163(h), I.R.C.                                    


               Peter U. Boehme and Mary M. Boehme, pro sese.                          
               Ronald T. Jordan, for respondent.                                      


                                 MEMORANDUM OPINION                                   

               HALPERN, Judge:  By notice of deficiency dated March 31,               
          2000, respondent determined deficiencies in petitioners’ Federal            
          income tax for 1995 and 1996 (the audit years) in the amounts of            
          $2,985 and $140,857, respectively.  After concessions, the issues           
          remaining for decision are (1) whether $400,000 received by                 
          petitioner Mary M. Boehme in 1996 in exchange for her right to              
          receive certain future annual lottery payments is ordinary income           
          or capital gain, and (2) whether petitioners are entitled to                
          deduct, for 1996, $64,000 paid by Mary in connection with the               
          repayment of loans to her secured by her lottery winnings.                  
          Petitioners raised the latter issue during a hearing in lieu of             
          trial (the hearing) without objection by respondent.1                       
               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the years at issue, and             


               1  Certain adjustments to petitioners’ dependency                      
          exemptions and schedule A itemized deductions for 1996 are                  
          derivative of the adjustments at issue and will be resolved by              
          our resolution of those adjustments.                                        




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