Warren E. Halle Martha D. Halle, Partners Other Than the Tax Matters Partner, and Kingstowne L. P. v. Commissioner of Internal Revenue

OPINION

NIEMEYER, Circuit Judge:

We are presented with the question of whether the taxpayer may deduct as interest under I.R.C. § 163(a) $900,000 in payments it made to defer the closing date of a stock purchase agreement that obligated it to buy all of a corporation’s capital stock. Because the stock purchase agreement contained a liquidated damages clause limiting the taxpayer’s liability on default, the Commissioner of Internal Revenue concluded that the agreement did not impose indebtedness on the taxpayer for the full purchase price and that, therefore, the $900,000 paid to defer…