Collins v. Commissioner
United States Tax Court
1. Held, amount paid as prepaid interest in a transaction wherein petitioners purchased an apartment building was not deductible because the installment debt and prepayment-of-interest provisions in the purchase contract were shams and lacking in substance.
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1. Held, amount paid as prepaid interest in a transaction wherein petitioners purchased an apartment building was not deductible because the installment debt and prepayment-of-interest provisions in the purchase contract were shams and lacking in substance. The purchase contract did not give rise to a bona fide indebtedness that would support the interest deduction. 2. Held, further, fee of $ 250 paid to petitioners' attorney for legal services in connection with the acquisition of income-producing property was a capital expenditure and not deductible as an ordinary and necessary expense. 3.…
1Opinion of the Court
OPINION
The principal issue in this case is whether petitioners are entitled to a deduction in the year 1962 of $44,299.70 under section 163 and I.T. 3740,1945 C.B. 109. The cited section allows a deduction for “all interest paid * * * on indebtedness” and I.T. 3740, supra, provides that a cash basis taxpayer may deduct interest paid in advance for a period of 5 years in the year of payment.2
The burden was on petitioners to show that the payment in issue, $44,299.10, constituted interest on indebtedness within the meaning of section 163. To do this they must prove that a genuine debt existed…
2Cases cited14 opinions
- Gregory v. HelveringSupreme Court of the United States · 1935
- Deputy, Administratrix v. Du PontSupreme Court of the United States · 1940
- Knetsch v. United StatesSupreme Court of the United States · 1960
- Old Colony Railroad v. CommissionerSupreme Court of the United States · 1932
- Kapel Goldstein and Tillie Goldstein v. Commissioner of Internal RevenueCourt of Appeals for the Second Circuit · 1966
9 more not listed; retrieve them via the Exa API.
3Cited by28 opinions
- Zmuda v. CommissionerUnited States Tax Court · 1982
- Surloff v. CommissionerUnited States Tax Court · 1983
- Professional Services v. CommissionerUnited States Tax Court · 1982
- Derr v. CommissionerUnited States Tax Court · 1981
- Thompson v. CommissionerUnited States Tax Court · 1976
23 more not listed; retrieve them via the Exa API.