Davison v. Commissioner
United States Tax Court
107 T.C. 35 (1996)
White Tail, an accounting firm led by Davison (plaintiff), couldn't pay an installment due to lender Hancock, which agreed to loan White Tail the exact amount needed to cover the interest portion, adding that amount to the first loan's principal; White Tail received the second loan's proceeds one day and wired the full installment (including that same interest amount) back to Hancock the next day. Davison claimed the interest portion as a tax deduction; the Commissioner (defendant) disallowed it, and Davison petitioned the Tax Court.
Whether a federal taxpayer is entitled to an interest-payment deduction where the taxpayer uses a subsequent loan solely to make payments on a prior loan from the same lender.