tax question

jerry7271 · Joined: 25 Feb 2008 Posts: 2

If I am a self-employed attorney as an unincorporated sole
proprietorship. In 2006, the IRS disallowed several business
deductions I took in 2003 and 2004. In addition to paying the
deficiency and assessed penalties, I also pays $18,000 in interest on
the tax owed. Can I deduct that interest in the current year?

Archived from group: misc>taxes

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

wrote
> If I am a self-employed attorney as an unincorporated
> sole proprietorship. In 2006, the IRS disallowed
> several business deductions I took in 2003 and 2004.
> In addition to paying the deficiency and assessed
> penalties, I also pays $18,000 in interest on the tax
> owed. Can I deduct that interest in the current year?

Nope. It's not considered business related (although you may think so) and
personal interest paid is not deductible, except for mortgage and qualified
investment interest.

--
Paul A. Thomas, CPA
Athens, Georgia

jerry7271 · Joined: 25 Feb 2008 Posts: 2

On 2$B7n(B26$BF|(B, $B>e8a(B2$B;~(B50$BJ,(B, "Paul Thomas, CPA"
wrote:
> wrote
>
> > If I am a self-employed attorney as an unincorporated
> > sole proprietorship. In 2006, the IRS disallowed
> > several business deductions I took in 2003 and 2004.
> > In addition to paying the deficiency and assessed
> > penalties, I also pays $18,000 in interest on the tax
> > owed. Can I deduct that interest in the current year?
>
> Nope. It's not considered business related (although you may think so) and
> personal interest paid is not deductible, except for mortgage and qualified
> investment interest.
>
> --
> Paul A. Thomas, CPA
> Athens, Georgia

Great! Could you provide more details for the related regulations or
IRS?

D. Stussy · Joined: 25 Aug 2007 Posts: 126

wrote in message@z70g2000hsb.googlegroups.com...
> On 2$B7n(B26$BF|(B, $B>e8a(B2$B;~(B50$BJ,(B, "Paul Thomas, CPA"

> wrote:
> > wrote
> >
> > > If I am a self-employed attorney as an unincorporated
> > > sole proprietorship. In 2006, the IRS disallowed
> > > several business deductions I took in 2003 and 2004.
> > > In addition to paying the deficiency and assessed
> > > penalties, I also pays $18,000 in interest on the tax
> > > owed. Can I deduct that interest in the current year?
> >
> > Nope. It's not considered business related (although you may think so)
and
> > personal interest paid is not deductible, except for mortgage and
qualified
> > investment interest.
> >
> > --
> > Paul A. Thomas, CPA
> > Athens, Georgia
>
> Great! Could you provide more details for the related regulations or
> IRS?

IRC Section 163, TR 1-163, and COURT CASES.

Prior to 1986, the business-sourced part of a tax deficiency was considered
business in nature and therefore the interest was allowable as a business
deduction. That changed in 1986 when Congress disallowed "personal
interest" from being deductible (IRC 163(h) [which does exempt "trade or
business interest expense"] and Treasury instituted TEMPORARY TR
1-163.9T(b)(2)(A)). For a 1998 tax year, I personally argued that TR
1.163-9 had naturally expired (12 years after enactment) by not having gone
through the appropriate administrative procedure to become permanent, but
the Tax Court did not agree (cf. TC Memo 2003-232). Natural expiration was
the only argument that cases such as "Redlark" had not tried. I believed
that any definition of "temporary" exceeding a decade was absurd.

Lesson: Remember that "temporary" in this context may exceed a decade. As
the case in TC Memo 2003-232 was NOT small-case, I'm waiting for the day
that it is successfully cited to bite the IRS in the ....