Opinion
17579-18
03-29-2023
RICHARD JOHN CARDULLA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
James S. Halpern Judge
The Court would like the parties to submit simultaneous Supplemental Briefs addressing the following questions:
Of consequence in this case is the "Note Secured by Deed of Trust" (Note), see Ex. 61-P. The Note is for $1,200,000, has a term of 12 years, and calls for interest of 10% a year (plus principal) payable at maturity. Petitioner, for each of 2014 and 2015, on Schedules C-1 (X-Way Delta), deducted accrued interest of $120,000. One question between the parties is whether the Note constitutes actual indebtedness. The Court wishes the parties to assume that it does, and, on that assumption, to answer specific questions. First, does interest on the Note accrue pursuant to the rules for Original Issue Discount (OID), see §§ 163(e), 1273, 1274? If so, how much interest accrues under the OID ruels for 2014 and 2015? Would OID accruals for 2014 and 2015 exceed the deductions claimed by petitioner on the X-Way Delta Schedules C-1? If so, is petitioner stuck with the amounts he claimed unless respondent agrees to accrual under the OID rules? In other words, must petitioner obtain the permission of the Commissioner to change from the way he reported those deductions on the Schedules C-1 to the method prescribed by section 163(d)? See § 446(d); Treas. Reg. § 1.446-1(d)(1). If so, does respondent intend to give permission?
If the Court were to conclude that both (1) the Note was valid indebtedness and (2) the interest on the Note was not interest allocable to a trade or business within the meaning of section 163(d), does respondent believe that X-Way Delta's property is property held for investment within the meaning of section 163(d)(5)(A)(i)? How so (see § 469(e)(1))? Assuming that it is property held for investment, and the permitted accrual of interest on the Note is investment interest, what do each of the parties compute to be petitioner's net investment income for each of 2014 and 2015? See § 163(d)(1).
Therefore, it is
ORDERED that, on or before, April 14, 2023, the parties are to file simultaneous Supplemental Briefs addressing the above questions.