Cole v. Commissioner
United States Tax Court
On Dec. 23, 1968, petitioners, cash basis taxpayers, paid 40 months' prepaid interest on a trust-deed note financing newly purchased apartments. Respondent allowed only that portion of the deduction allocable to 1968. Held: No binding contract existed on Nov. 26, 1968. The nonretroactivity provisions of Rev. Rul. 68-643, 1968-2 C.B. 76, were unsatisfied.
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On Dec. 23, 1968, petitioners, cash basis taxpayers, paid 40 months' prepaid interest on a trust-deed note financing newly purchased apartments. Respondent allowed only that portion of the deduction allocable to 1968. Held: No binding contract existed on Nov. 26, 1968. The nonretroactivity provisions of Rev. Rul. 68-643, 1968-2 C.B. 76, were unsatisfied. Held, further, petitioners' method of accounting for prepaid interest does not clearly reflect income, and the disallowance of the prepaid interest deduction is therefore sustained. Andrew A. Sandor, 62 T.C. 469 (1974), followed.
1Opinion of the Court
Wilbur, Judge:
Respondent determined a deficiency of $21,372.39 in Clifford M. and Elizabeth A. Cole’s joint Federal income tax for 1968, and a deficiency of $29,437.96 in James V. and Esther R. Cole’s joint Federal income tax for 1968. The sole issue for decision is whether respondent erred in disallowing petitioners’ deductions claimed for prepaid interest. Respondent, relying on Rev. Rul. 68-643, 1968-2 C.B. 76, and section 446,1 spread the interest deduction ratably over the 40-month period for which the interest was paid. The cases have been consolidated for trial, briefing, and opinion.
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