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Hunt concurred in them. Murphy claimed the $225,000 payment as
an interest deduction on his 1997 tax return.
The Commissioner disallowed that deduction, having
concluded that Murphy had actually already paid for Hamseh and
Desert Spice. He believes that Murphy used the $225,000 to pay
off the balance owing for On the Piste.2 He also disallowed
various other minor expenses. A notice of deficiency followed,
in which the Commissioner asserted an accuracy-related penalty
under section 6662 on the entire deficiency.3
The parties originally submitted the case for decision on
stipulated facts under Rule 122, but it was then restored to the
Court’s general docket for trial. The Murphys are residents of
Maryland, as they were when they filed their petition, and trial
was held in Baltimore.
OPINION
We must decide three issues: (1) whether Murphy has
successfully shifted the burden of proof onto the IRS; (2)
whether Murphy’s payment to Hunt was a deductible interest
2 Given the paperwork that Murphy produced, this might seem
to amount to an assertion that Murphy was committing fraud. This
would have triggered a larger penalty, but would also have
saddled the Commissioner with a heavier burden of proof.
3 Unless otherwise indicated, section references are to the
Internal Revenue Code as in effect for the years at issue, and
the Rule references are to the Tax Court Rules of Practice and
Procedure.
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