Stoody v. Comm'r of Internal Revenue

• Decision Date: 10 January 1977
• Docket Number: Docket No. 1127-73.
• Citation: 67 T.C. 643
• Parties: WINSTON STOODY AND SANDRA STOODY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

67 T.C. 643

WINSTON STOODY AND SANDRA STOODY, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 1127-73.

United States Tax Court

Filed January 10, 1977.

An opinion was filed in Winston Stoody, 66 T.C. 710 (1976), on July 14, 1976, and a decision entered in favor of respondent on July 21, 1976. Subsequently, petitioners timely filed motions for reconsideration of our findings and opinion and vacation of our decision. One of the grounds asserted in such motions was a claim for interest deductions in 1968 and 1969 in addition to those previously allowed by respondent. Held, petitioners' motion to vacate our decision is granted, and their motion for reconsideration of our findings and opinion is granted in part. Held, further: Petitioners are entitled to an interest deduction in 1968 of $4,000. However, an interest deduction in 1969 is denied. Thomas H. Carver, for the petitioners.

Darrell B. McDaniel, for the respondent.

SUPPLEMENTAL OPINION

IRWIN, Judge:

Our original opinion in this case (66 T.C. 710) was filed on July 14, 1976. A decision was entered in favor of respondent on July 21, 1976. Petitioners then timely filed a ‘Motion for Reconsideration of Findings and Opinion (Rule 161)’ and a ‘Motion to Vacate or Revise Decision (Rule 162) Request for Review en banc.’ We denied the request for review by the entire Court by order dated September 8, 1976. We will now deal with both motions to the extent they request consideration by the trial judge.

Petitioners have raised numerous issues in their motions for reconsideration of opinion and vacation of decision. Most of these issues were previously raised on brief after trial. In addition, in part IV of their ‘Motion to Vacate or Revise Decision (Rule 162),‘ petitioners claim interest deductions for 1968 and 1969 in excess of those previously allowed by respondent. These claims for interest deductions were raised in the petition, but were ignored at trial and on brief, and were not considered by this Court when we filed our original opinion.¹

Respondent objects to petitioners' ‘Motion for Reconsideration of Findings and Opinion (Rule 161)‘ claiming that petitioners have not set forth any valid grounds calling for reconsideration. Respondent objects in part to petitioners' ‘Motion to Vacate or Revise Decision (Rule 162)‘ claiming that the motion raises no substantive legal issues not covered in petitioners' briefs after trial. Respondent concedes, however, that petitioners are entitled to a greater interest deduction in 1968 than that previously allowed, but he denies petitioners' claim for a greater interest deduction in 1969.

Almost all of the issues raised in petitioners' motions have been raised previously by the parties and have received thorough consideration by this Court. We will not reconsider those issues. In addition, several new issues have been raised for the first time which we will also not consider. Robin Haft Trust, 62 T.C. 145 (1974), affd. on this issue 510 F.2d 43 (1st Cir. 1975). We will, however, grant petitioners' ‘Motion to Vacate or Revise Decision (Rule 162)‘ to enable us to consider the interest deduction issues raised therein. Further, we feel it is necessary to revise our findings of fact and opinion filed on July 14, 1976, to address these issues, and for that purpose only we will grant the ‘Motion for Reconsideration of Findings and Opinion (Rule 161).’ In all other respects this latter motion will be denied.

Petitioners argue that a portion of the payments made to American Guaranty Corp. in 1968 and 1969 represented interest on indebtedness within the meaning of section 163(a) of the Internal Revenue Code of 1954. They assert that pursuant to the terms of the settlement agreement executed on June 28, 1968, petitioner Winston Stoody agreed to pay American Guaranty Corp. a total of $9,000 interest, $4,000 of which was paid in 1968, and the $5,000 balance paid in four equal installments in the years following. Accordingly, they conclude that $4,000 of the $10,915 payment to American Guaranty Corp. in 1968 and $1,250 of the $8,775 payment in 1969 represented interest deductible under section 163(a).

Respondent concedes that petitioners are entitled to a $4,000 deduction for interest paid in 1968. However, respondent contends he has already allowed petitioners a $485 deduction for such interest and that, therefore, petitioners are only entitled to an additional $3,515 interest deduction in that year. As for the year 1969, respondent contends that the record does not support the conclusion that petitioners are entitled to an interest deduction greater than the $2,250 already allowed.

Petitioners' arguments in favor of interest deductions in 1968 and 1969 rest solely on the terms of the settlement agreement entered into between petitioner Winston Stoody and American Guaranty Corp. on June 28, 1968. Pertinent provisions of that agreement are as follows:

1. Winston Stoody agrees to pay to American Guaranty Corporation the total sum of $44,400 (which sum includes interest on part of said amount) and said payment is for the following purposes and in the following amounts:

a. The sum of $9,000.00 which represents a discharge of the claim of American Guaranty Corporation for $63,969 said to be due as interest on accrued but unpaid installments due under said leases and said guaranty. The sum of $4,000.00 will be paid upon execution of this agreement and the balance will be represented by a non-interest bearing note in the sum of $5,000.00 due and payable on May 15, 1973 (unless the date of payment is accelerated pursuant to the provisions of this agreement). The terms of said note shall be as set forth in Exhibit 1 hereto.

b. The sum of $35,400.00 which sum includes interest at 10% per annum and represents settlement on account of unpaid and accrued lease payments guaranteed by Winston Stoody plus interest on said...