-369-
Respondent does not challenge the ultimate conclusion in the
STJ report regarding the Kanters’ deductions for the taxable
years 1987 to 1989. Respondent, however, does not state whether
he objects to the STJ report holding with regard to the Kanters’
Schedule A deduction for 1986. Therefore, we shall address the
question whether petitioners are entitled to the Schedule A
deduction in question for 1986.148
FINDINGS OF FACT
On Schedule A of the Kanters’ 1986 Federal income tax
return, the Kanters claimed a deduction of $368,227 in “Other
interest” expenses. In the notice of deficiency, respondent
determined that no deduction was allowable to the Kanters for the
$368,227 in interest expenses claimed for 1986. The notice of
deficiency stated in pertinent part:
It is determined that the claimed interest expense
deduction of $368,227 in 1986 is not allowed because
you have not established:
(1) that there was a valid indebtedness;
(2) if there was a valid indebtedness, that the
indebtedness was yours; or
(3) that you actually paid any interest.
Therefore, your taxable income for 1986 is increased by
$368,227.
148 The Court’s disposition of this issue represents in
large measure a wholesale adoption of the recommended findings of
fact and conclusions of law set forth in the STJ report.
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