James Hildebrand v. Commissioner Internal Revenue Service

James and Mary Hildebrand (the “Hilde-brands”), and Leland and Irene Waltuck (the “Waltucks”) (collectively, the “taxpayers”) bought from Kilburn Vacation Homeshares, Inc. (“Kilburn”) timeshare vacation homes in and around the Park City ski resort in Utah. The purchase contract provided for a down payment, and small annual interest payments for the first 10 years; the balance of the interest and principal was due in a balloon payment at the end of 30 years. The contract was nonre-course, so the purchasers could forfeit their timeshares and avoid the final payment. Both the Hildebrands and the Wal-tucks annually deducted a portion of the total interest due over the life of the contract.

The Commissioner of Internal Revenue (“Commissioner”) issued to the taxpayers statutory notices of deficiency. They petitioned the Tax Court for relief; their cases were consolidated with the petitions of several related investors. The Tax Court held for the Commissioner and also assessed against the taxpayers negligence penalties and an accelerated rate of interest. Ames v. Commissioner, 58 T.C.M. (CCH) 1470 , 1990 Tax Ct. Memo LEXIS 87 (1990). Many of the investors appealed. The Fourth, Fifth,…