United States Seventh Circuit

The Tax Court's holding that the petitioners were entitled to deduct only 80 percent of the expense that their QSub bank had incurred in borrowing money with which to buy qualified tax-exempt obligations is reversed where, for firms that have been S corporations for at least three years and so escape the "except" clause of section 291, the zero percent rule and the 80 percent rule are replaced by a 100 percent rule and all the interest expense incurred in acquiring qualified tax-exempt obligations is deductible. Here, petitioners' subchapter S holding company and QSub bank are such S entities, and the earlier of the two taxable years at issue in this case - 2003 - was six years after the petitioners' holding company converted from C to S corporate status.

Appellate Information

• Decided 03/17/2010
• Published 03/17/2010

Judges

Court

• United States Seventh Circuit

Counsel