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Rul. 93-68, 1993-2 CB 72 ISSUE If an individual who is neither a dealer nor a trader in stock or securities borrows money to purchase the stock of a C corporation to protect the individual's employment with the corporation, is the interest on the loan Уinvestment interestФ for purposes of the section 163(d) investment interest deduction limitation? FACTS A, an individual, is an employee of X, a C corporation. A borrows money to purchase 100 percent of the stock of X. A is neither a dealer nor a trader in stock or securities. A's sole motive for purchasing and holding the X stock is to protect A's employment with X. X has never paid a dividend. LAW AND ANALYSIS Section 163(d)(1) of the Code limits the amount of investment interest that a taxpayer other than a corporation may deduct for any taxable year to the amount of the taxpayer's net investment income for the taxable year. Section 163(d)(2) provides that amounts not deducted by reason of section 163(d)(1) are carried forward indefinitely to succeeding taxable years. Section 163(d)(3)(A) of the Code defines Уinvestment interestФ as any interest allowable as a deduction (determined without regard to section 163(d)(1)) that is paid or accrued on indebtedness properly allocable to property held for investment. Under section 163(d)(5)(A), the term Уproperty held for investmentФ includes any property that produces income of a type described in section 469(e)(1). The type of income described in section 469(e)(1)(A) includes any gross income from interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Because stock generally produces dividend income, it is property held for investment within the meaning of sections 163(d)(5)(A) and 469(e)(1)(A) of the Code, unless the dividends are derived in the ordinary course of a trade or business. In this case, any dividends paid by X would not be derived by A in the course of a trade or business because A is neither a dealer nor a trader in stock or securities. Thus, the X stock purchased by A is property held for investment pursuant to section 163(d)(5)(A), regardless of A's motives for purchasing or holding that stock. Accordingly, the interest paid by A that is attributable to A's purchase of the X stock is investment interest within the meaning of section 163(d)(3)(A) and A's deduction of that interest is limited by section 163(d)(1). Cases holding that stock is not property held for investment in the absence of a substantial investment motive (see, e.g., Miller v. Commissioner, 70 T.C. 448 (1978)) involve taxable years beginning prior to January 1, 1987, the effective date of current section 163(d)(5)(A) of the Code (as amended by the Tax Reform Act of 1986 to define Уproperty held for investmentФ). Thus, those cases are not relevant in determining whether stock is property held for investment within the meaning of section 163(d)(5)(A). If the interest attributable to A's purchase of the stock were not characterized as investment interest, that interest would be nondeductible personal interest under section 163(h)(1) of the Code. Under section 163(h)(2)(A), the term Уpersonal interestФ includes interest paid or accrued on indebtedness properly allocable to the trade or business of performing services as an employee, unless one of the other exceptions in section 163(h)(2) applies. In this case, the investment interest exception in section 163(h)(2)(B) precludes treating the interest attributable to A's purchase of the X stock as personal interest. HOLDING If an individual who is neither a dealer nor a trader in stock or securities borrows money to purchase stock in a C corporation to protect the individual's employment with the corporation, the interest on the loan is investment interest for purposes of the section 163(d) investment interest deduction limitation. 0Ёhьs hg5 B*CJaJph%f m Х з  az|ыЇ0єч█ч█ч█████ч█ ддx[$\$gd3г ддx[$\$gd3г ддx[$\$gd3г 0■61Рh/R :p3г░╨/ ░р=!░а"░а#Ра$РА%░░╨░╨ Р╨Ж Ь@@ё @ NormalCJ_HaJmH sH tH R@R Heading 1дdдd@&[$\$5БCJ&KH$\БaJ&N@"N Heading 2дdдd@&[$\$5БCJ$\БaJ$N@2N Heading 3дdдd@&[$\$5БCJ"\БaJ"N@BN Heading 4дdдd@&[$\$5БCJ\БaJF@RF Heading 5дdдd@&[$\$5Б\БN@bN Heading 6дdдd@&[$\$5БCJ\БaJDA@Є бD Default Paragraph FontViє │V  Table Normal :V Ў4╓4╓ laЎ (kЇ ┴(No List 6U@вё6 Hyperlink >*B*ph FV@вF FollowedHyperlink >*B* ph <■O< pagebreakдdдd[$\$J■O"J fsnolinkдdдd[$\$5БB*\БphB■O2B textareaдdдd[$\$CJaJ2■OвA2 copyrightCJaJ2■OвQ2 sectionidCJaJN■OвaN pagetitle$д д XDYD[$\$5БCJ\БaJD■OвqD stateaffleglink q╩    2■OвБ2 hit5Б\Бq╩  №с(D■OвСD Hyperlink15Б>*CJ\БaJph1ФT■OвбT FollowedHyperlink15Б>*CJ\БaJph1ФD■Oв▒D Hyperlink25Б>*CJ\БaJph1ФT■Oв┴T FollowedHyperlink25Б>*CJ\БaJph1ФB^@╥B Normal (Web)дdдd[$\$*W@вс* Strong5Б\Б.X@вё. 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