Raymond T. and Patricia Murphy - Page 10

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          Here again we find Murphy credible when he testified that he got            
          together with his accountant in late 1997 to calculate the number           
          of days’ worth of interest on Hamseh and Desert Spice that                  
          $225,000 would pay off, and then secured Hunt’s acquiescence in             
          treating the payment as interest on those two horses instead of             
          full payment of principal for On the Piste.  A note that isn’t              
          paid according to its original terms is still a debt even though            
          overdue, see id., and Hunt was free to accept immediate payment             
          of interest for Hamseh and Desert Spice and equally free to                 
          extend the due date for Murphy to finish paying for On the Piste.           
          See, e.g., Kluesner v. Commissioner, T.C. Memo. 1989-83 (“the               
          parties to a contract may modify an existing contract by mutual             
          consent” (citation omitted)).  We hold that the $225,000 payment            
          was for interest on a valid and enforceable debt between Murphy             
          and Hunt.  That’s all that’s required to rule in Murphy’s favor             
          on the issue of deductibility.                                              
          3. Accuracy-Related Penalty                                                 
               Only the penalty issue remains.  The Commissioner can impose           
          a penalty for negligence on a taxpayer who fails to make a                  
          reasonable attempt to comply with the provisions of the Code or             
          displays careless, reckless, or intentional disregard of the Code           
          or regulations.  Sec. 6662; sec. 1.6662-3, Income Tax Regs.  In             
          this case, the Commissioner asserted the penalty against the                
          entire deficiency.                                                          






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