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of ATV’s other shareholders. See United Aniline Co. v.
Commissioner, supra; Melvin v. Commissioner, supra.
We allocate to ATV and Mr. Cutts 89 percent and 11 percent
of the whole of Landmark Hall, respectively. In accordance with
our instruction, supra p. 12, the amount of ATV’s disallowed rent
deduction is not $8,580 ($78,000 x .11) but $4,926.32 ($82,105.26
x .11 - $82,105.26 x .05). We hold ATV is entitled to deduct
$73,073.68 of Landmark Hall rent ($78,000 - $4,926.32).
We hold Mr. Cutts is entitled to deduct Schedule E expenses
for 89 percent of insurance,5 mortgage interest,6 real estate
taxes, and depreciation for Landmark Hall. A Rule 155
computation is necessary to adjust Mr. Cutts’s allowable itemized
deductions to take our allocation into account.
Issue 2. Whether the Cross-Debts Between Petitioners Should Be
Netted for Purposes of Applying Section 7872
Respondent and petitioners agree that the debts between ATV
and Mr. Cutts should be treated as loans with below-market
5Although, under the lease terms, ATV was required to
purchase insurance for Landmark Hall, respondent conceded in the
statutory notice that Mr. Cutts is entitled to deduct Landmark
Hall insurance as a rental property expense up to the amount of
ATV’s allocation of Landmark Hall.
6Respondent conceded in the statutory notice that Mr. Cutts
is entitled to deduct Landmark Hall mortgage interest as a rental
property expense up to the amount of ATV’s allocation of Landmark
Hall.
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