- 10 -
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.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011