James J. Flood Joan L. Flood v. United States

The United States appeals from the decision of the district court granting summary judgment in favor of James and Joan Flood in their claim for an income tax refund. The sole issue before us is whether the amount of investment interest that could be carried forward under § 163(d) of the Internal Revenue Code in effect between 1983 and 1986, 26 U.S.C. § 163 (d), was limited by the taxpayer’s taxable income in the year that the investment interest was paid or accrued. We have jurisdiction under 28 U.S.C. § 1291 . We hold that the amount that may be carried forward is not limited by the amount of taxable income. We therefore affirm.

BACKGROUND

“Investment interest” is defined, generally, as “interest paid or accrued on indebtedness incurred ... to purchase or carry property held for investment.” I.R.C. § 163(d)(3)(i). It is a deductible expense under I.R.C. § 163(a).

In 1969, Congress amended the tax code to limit the amount of investment interest that could be deducted in any taxable year. See Pub.L. No. 91-172, tit. II, § 221(a), 83 Stat. 674 (1969). As amended in 1976, the § 163(d)(1) limitation on deduction of investment interest was equal to the taxpayer’s net investment…