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payment is excepted from the definition of nondeductible
“personal interest” pursuant to section 163(h)(2)(A).
D. Applicability of Section 163(h)(2)(B)
Petitioners’ Exhibit 13, placed in evidence during the
hearing, consists of a copy of the instructions for preparing
I.R.S. Form 4952, Investment Interest Expense Deduction (the Form
4952 instructions). At the hearing, Peter noted that the Form
4952 instructions state that property held for investment
includes property that produces income from annuities. Although
petitioners have failed to elaborate further, either at the
hearing or in their brief, we interpret Peter’s introduction of
the Form 4952 instructions as an attempt to argue that at least a
portion of the $64,000 interest payment is deductible as
“investment interest” pursuant to section 163(h)(2)(B), and, more
specifically, that such interest was “paid * * * on indebtedness
properly allocable to property held for investment” (i.e., the
annuity purchased by the Colorado State Lottery to fund the
lottery payments to Mary). Sec. 163(d)(3)(A).
Assuming that we have accurately described petitioners’
argument, we find it to be without merit. The annuity allegedly
“held for investment” was held by the Colorado State Lottery, not
by Mary who incurred the interest expense. More significantly,
petitioners explicitly stipulated that the loans, to the extent
of $100,000, were used to purchase or improve petitioners’
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