Peter U. and Mary M. Boehme - Page 12




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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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