Category: Deductions & Credits
Subject: Interest Expense
Title: Investment Interest Carryforward
IRC Sections: 163
Filename: 1165.html
Date Produced: 8/96 Copyright 1998, The Tax Resource Group. All rights reserved. Telephone
800-578-3498. Internet: www.taxresourcegroup.com Background
Taxpayer used borrowed funds to purchase the stock of banks for whom the
taxpayer did consulting work. Some of the stock ultimately became worthless.
Taxpayer wishes to argue that any investment interest carryforward related
to the investment in the bank stock is released as a result of the stock
having become worthless in a manner similar to the release of a passive
activity loss when the activity to which the loss relates is totally disposed
of. Issue
Is there any support for the theory set forth above? Answer
There is absolutely no support for this theory. Discussion
In the course of my work, I reviewed the applicable statute, the Congressional
Committee Reports surrounding the original enactment of the investment interest
provisions in 1969 and the reports surrounding the significant change to
these provisions in 1986. I also searched for cases, published rulings,
and private letter rulings on this issue. That work revealed no hint of
support for the theory described above. In our conversations on this issue, we briefly discussed taking the position
that the taxpayer's purchase of stock is integrally related to his trade
or business. Perhaps it would be profitable to pursue this now. I suggest
speaking with the taxpayer to see whether the facts support such an argument.
If you need my assistance, please let me know. | 
