Ellis I. And Nelle S. Levitt, Appellants-Appellees v. United States of America, Appellees-Appellants

BRIGHT, Circuit Judge.

The appeal and cross-appeal in this case require that we interpret and apply to the circumstances disclosed by the record the provisions of § 265(2) of the Internal Revenue Act of 1954, as amended, 26 U.S.C. § 265(2) (1970), which disallows a deduction for interest “on indebtedness incurred or continued to purchase or carry obligations * * * the interest on which is wholly exempt from * * * [federal income] taxes * *.” 1

Taxpayer Nelle Levitt claimed for the years 1963-1965, inclusive, an interest deduction for loans from the Iowa-Des Moines National Bank (hereinafter…