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documents related to the interest expense. Finn verified from
this information that petitioner had in fact paid $47,737 of the
claimed interest expense but questioned petitioner’s claimed
deduction of this interest as business interest.
The case was reassigned to another revenue agent, Pamela
Carter (Carter). Carter also questioned the deductibility of the
interest as business interest and questioned whether petitioner
had issued information returns (Forms 1099) to the people to whom
he had paid the interest. On November 13, 1996, Carter faxed an
IDR to Jones requesting Forms 1099 issued to the payees of the
interest and certain other information related to the interest’s
characterization. Two days later, Carter spoke with Jones, and
he gave to her some of the requested information. Jones did not
mention that the corporation was an intermediary in petitioner’s
operation.
Carter met with Jones on November 22, 1996. During the
meeting, Carter determined that petitioner had actually paid
$61,752.86 of interest. Carter asked Jones for additional
information on the corporation and issued to petitioner an IDR
requesting documentation of petitioner’s loans to the corporation
and an allocation of his interest between business, personal, and
investment pursuits. Carter also requested that petitioner
identify where on the return he had reported certain items of
income, and she requested that petitioner furnish to her either
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