Kovtun v. Commissioner
United States Tax Court
The petitioners in all of these consolidated cases were limited partners in S.C., a partnership that was in turn a partner in Lake Murray partnership. The latter partnership reported the payment of prepaid interest to the Sunset Corp. in its information return. The partners in S. C. each took the ratable portion of said interest expense as a deduction in his individual return.
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The petitioners in all of these consolidated cases were limited partners in S.C., a partnership that was in turn a partner in Lake Murray partnership. The latter partnership reported the payment of prepaid interest to the Sunset Corp. in its information return. The partners in S. C. each took the ratable portion of said interest expense as a deduction in his individual return. Held: Respondent was right in disallowing said deductions for there was no existing "indebtedness" ( sec. 163, I.R.C. 1954) owed by the Lake Murray partnership to Sunset to support the interest payment. The required…
1Opinion of the Court
OPINION
Petitioners, who were limited partners, deducted their ratable portions of the so-called loan fee and prepaid interest shown on the partnership return in the total amount of $284,813, on their individual income tax returns for 1963 under section 163,1.R.C. 1954.3 That section provides, in part: “There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.”
It is respondent’s position that there was no existing indebtedness in relation to which any interest was paid in 1963. Respondent states on brief that “petitioners’ right to deduct…
2Cases cited2 opinions
- First National Company v. Commissioner of Internal RevenueCourt of Appeals for the First Circuit · 1961
- First Nat'l Co. v. CommissionerUnited States Tax Court · 1959
3Cited by2 opinions
- Felcyn v. United StatesDistrict Court, C.D. California · 1988
- Kovtun v. CommissionerUnited States Tax Court · 1970