- 44 -
the deduction on the grounds that no indebtedness for purposes of
section 163 existed, concluding instead that the 5 percent
“interest” was merely part of the purchase price of the stock.
As with the taxpayer in Jordan, Indeck’s payment of an amount
denominated as interest to settle a dispute, even where stated as
a percentage per annum of a designated amount, does not entitle
it to an interest deduction where indebtedness did not exist.
Indeck’s obligation to Mr. Polsky with respect to the
purchase of his shares did not become fixed in amount or
enforceable until the parties reached an agreement on April 13,
1994, pursuant to which Mr. Polsky would transfer his shares, and
Indeck would become obligated to make payment, on or before May
15, 1994. As a consequence, Indeck had no indebtedness to Mr.
Polsky prior to May 15, 1994,19 and no interest for purposes of
section 163(a) could have accrued prior to that date.
Indeck cites Halle v. Commissioner, 83 F.3d 649 (4th Cir.
1996), revg. on other grounds Kingstowne v. Commissioner, T.C.
Memo. 1994-630, and Dunlap v. Commissioner, 74 T.C. 1377 (1980),
revd. on other grounds 670 F.2d 785 (8th Cir. 1982), in support
19 The evidence persuades us that Indeck incurred an
existing, legally enforceable obligation to pay Mr. Polsky a
designated sum, on Apr. 13, 1994--the date on which the parties
reached an oral agreement to settle and described that agreement
on the record to the judge presiding in the Lake County Lawsuit,
who dismissed the case on that basis. Indeck’s obligation,
however, was to pay Mr. Polsky a designated sum on or before May
15, 1994.
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