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purchased using credit cards. Petitioners deducted the interest
payments on the credit card debt on Schedule F, Profit or Loss
From Farming, in prior taxable years.
In or before 1998, petitioners obtained a home equity loan
and used the proceeds to pay off the credit card debt incurred in
connection with the equipment. Petitioners paid $5,8712 of
interest on the home equity loan in 1998 and claimed that amount
as an interest expense deduction on their Schedule F.
Respondent determined that the interest expense was not paid
or incurred in connection with the tree farm and, therefore,
should not be deducted on Schedule F. Instead, respondent
determined that the interest expense should be deducted on
Schedule A, Itemized Deductions.
2. The Seamstress Business
In 1998, Mrs. Alexander operated a seamstress business from
petitioners’ home. During that year petitioners’ son, Steven,
was a 21-year-old college student in California. When Steven
returned home for the summer, he assisted Mrs. Alexander with the
seamstress business. Steven performed a variety of tasks such as
purchasing supplies, drafting sewing patterns, and cleaning Mrs.
2 All amounts are rounded to the nearest dollar.
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