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Cathcart v. Commissioner

United States Tax Court
36 T.C.M. 1321 (1977)


In 1973, Cathcart (plaintiff) obtained a net proceeds loan from Southern Federal in the amount of $57,600. When net proceeds loans are disbursed, a portion of the face value of the loan is withheld to cover service or interest charges. For this reason, Southern Federal disbursed only $55,039.92 to Cathcart, withholding $2,560.08. Of the amount withheld, $1,086.60 represented an interest charge. Cathcart sought to deduct the entire $1,086.60 in 1973. The Commissioner (defendant) disallowed the deduction because Cathcart did not pay the interest charge in 1973. Rather, the interest charge was withheld, and Cathcart would pay a portion of the interest charge as part of his mortgage payments over the next 29 years. The Commissioner required Cathcart to prorate the interest over the 29 year period. Consequently, the Commissioner only allowed Cathcart to deduct $34.34 in 1973.

Rule of Law


Holding and Reasoning (Wiles, J.)

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