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DeCastro, Poltash, and McWade had also agreed that the
Thompsons would be able to deduct the interest payable on the
deficiencies agreed to under the settlement by prepaying such
interest by December 31, 1986.14 As of December 31, 1986, the
accrued interest on the Thompsons’ newly settled deficiencies was
$35,275.81 for 1980, and $24,270.62 for 1981--a total of
$59,546.43, which the parties rounded to $59,545. Accordingly,
the decision documents returned to McWade by DeCastro stated:
“By separate cover you will also be receiving a check in the
amount of $59,545 representing interest on the tax deficiencies
reflected in the decision documents.” With a letter dated
December 30, 1986, Mr. Thompson sent McWade two checks: check
No. 54 for $34,000, and check No. 242 for $25,545, for a total of
$59,545. Mr. Thompson’s letter stated: “I am at the present
time doing the necessary procedures to take care of the balance.”
At McWade’s direction, IRS personnel in Honolulu prepared
payment posting vouchers (Form 3244) allocating the Thompsons’
prepayment of $59,545 between the 2 years before the Court,
14The Internal Revenue Code was amended in 1986 to add a new
sec. 163(h) that repealed the deduction for “personal interest”.
See TRA sec. 511(b), 100 Stat. 2246. Under the new sec. 163(h),
1986 was the last taxable year in which taxpayers could deduct
100 percent of such personal interest. TRA sec. 511(e), 100
Stat. 2249. For 1987, only 65 percent of personal interest was
deductible, and the deduction for personal interest was phased
out entirely by the end of 1989. Sec. 163(h)(6).
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