report takes on a significant meaning. It signals that not all interest relating to income tax, etc., deficiencies are included in "personal interest". The logical explanation for what is excluded by "generally" is such interest that constitutes an ordinary and necessary business expense and is therefore "allocable to an indebtedness of a trade or business" within the meaning of the exception clause of section 163(h)(2)(A). To adopt respondent's position would require us to substitute the word "always" for "generally" and to expand the interpretation of the word "deficiencies" beyond its accepted meaning to encompass taxes other than income, etc., taxes in order to account for the use of the word "generally". By way of contrast, our interpretation accepts the established meaning of "deficiencies" and gives effect to "generally" without modification. Nor do we think our view is negated by the rationale advanced by both respondent and the Court of Appeals for the Eighth Circuit that, in the case of an individual, income tax, etc., the payment of deficiencies and therefore of the interest thereon is always a "personal obligation". That is equally true of the obligation to pay interest on sales and excise taxes imposed upon a business conducted as a sole proprietorship-interest that is excluded by regulation. Sec. 1.163-9T(b)(2)(iii)(A), Temporary Income Tax Regs., supra.

Nor can respondent's position be salvaged by the Joint Committee Staff Explanation. Such a document is not part of the legislative history although it is entitled to respect. E.g., Condor International, Inc. v. Commissioner, 98 T.C. 203, 227 (1992); see also Estate of Hutchinson v. Commissioner, 765 F.2d 665, 669-670 (7th Cir. 1985), affg. T.C. Memo. 1984–55; Livingston, "What's Blue and White and Not Quite as Good as a Committee Report: General Explanations and the Role of 'Subsequent' Tax Legislative History", 11 Amer. J. Tax Poly. 91 (1994). Where there is no corroboration in the actual legislative history, we shall not hesitate to disregard the General Explanation as far as congressional intent is concerned. See Estate of Wallace v. Commissioner, 965 F.2d 1038, 1050-1051 n.15 (11th Cir. 1992), affg. 95 T.C. 525

7 In this connection, we also note that the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, was enacted on Oct. 22, 1986, during the 99th Congress, whereas the General Explanation was published on May 4, 1987, during the 100th Congress. Thus, the General Explanation is not even entitled to the respect it might otherwise be accorded if it had been prepared for the Congress which enacted sec. 163(h).

(1990); Zinniel v. Commissioner, 89 T.C. 357, 367 (1987), affd. 883 F.2d 1350 (7th Cir. 1989); see also Livingston, supra at 93 (“The Blue Book is on especially weak ground when it adopts anti-taxpayer positions not taken in the committee reports."). Given the clear thrust of the conference committee report, the General Explanation is without foundation and must fall by the wayside. To conclude otherwise would elevate it to a status and accord it a deference to which it is simply not entitled.

Respondent further argues that Congress has failed to express dissatisfaction with the regulation in subsequent legislative actions in 1988 and 1990. According to National Muffler Dealers Association, Inc. v. United States, 440 U.S. 472, 477 (1979), this is one element to consider in determining the reasonableness of a regulation. However, we do not believe the legislative action discussed by respondent is the type contemplated by the Supreme Court. The first action is the enactment of the amendment to section 163(h)(2)(A) on November 10, 1988, which was less than a year after the issuance of the regulation on December 22, 1987, and which, as we have previously pointed out, see supra note 3, made no substantive change. Besides the implication from the fact that the regulation was only temporary, 11 months is a relatively short period of time for considering its impact.

The second action is a 1990 proposal of the Senate Finance Committee to amend section 163 by eliminating the deduction for corporate taxpayers of interest on income tax deficiencies. In explaining the proposed change of law, the committee states:

Individuals are not permitted to deduct personal interest. For this purpose, personal interest includes interest on underpayment of the individual's income taxes, even if all or a portion of the individual's income is attributable to a trade or business. [136 Cong. Rec. S15711 (Oct. 18, 1990).]

First, this statement is not reliable evidence of congressional approval, considering that it is only a proposal entered into the Senate record, and that the provision was not approved by Congress, nor is there any indication that the House of Representatives even reviewed the proposal. Furthermore, the proposed amendment contains an express

8 See also Lawson v. Commissioner, T.C. Memo. 1994-286.

restriction on the deductibility of deficiency interest, which shows that Congress knew how to restrict the deductibility of interest if it so intended.

One final comment. Suppose that the only income reported on the return of petitioners had been Schedule C income from Carrier Communications and that the entire deficiency related to the type of errors that the courts have previously concluded were expected to occur in the ordinary course of business. E.g., Polk v. Commissioner, 31 T.C. 412 (1958). It would constitute an unrealistic application of our tax laws to conclude that the interest on such deficiency is not attributable to an indebtedness properly allocable to a trade or business under section 163(h)(2)(A), in the absence of clear legislative intent that such a result is required. Yet such is the inescapable consequence of adopting respondent's position.

In light of the foregoing, and with all due respect to the Court of Appeals for the Eighth Circuit, we hold that, as applied to the circumstances involved herein, section 1.163– 9T(b)(2)(i)(A), Temporary Income Tax Regs., supra, constitutes an impermissible reading of the statute and is therefore unreasonable. Accordingly, we further hold that the interest involved herein is interest "on indebtedness properly allocable to a trade or business" and therefore excluded from personal interest under section 163(h)(2). In so holding, we emphasize that there will be situations where a Federal income tax deficiency will not be as narrowly focused as is the case herein, and therefore interest paid on the deficiency may not be said to constitute an ordinary and necessary business expense allocable within the meaning of section 163(h)(2)(A). Indeed, the situation in Miller v. United States, 95-1 USTC par. 50,068, 76 AFTR 2d 95-5162 (D.N.D. 1994), affd. 65 F.3d 687 (8th Cir. 1995), which the District Court described as "an obviously improper income deferral scheme", see supra note 6, can be said to fall within the latter category.

In order to take into account mathematical corrections encompassed by the stipulation of the parties,

Decision will be entered under Rule 155.

Reviewed by the Court.

SWIFT, JACOBS, WRIGHT, PARR, WELLS, CHIECHI, and VASQUEZ, JJ., agree with this majority opinion.

FOLEY, J., concurs in the result only.

SWIFT, J., concurring: Two significant facts are clear and undisputed in this case: (1) Under the express language of section 163(h)(2)(A), if an interest expense is properly allocable to a trade or business, then under that statute the interest expense is deductible; and (2) the interest expense at issue herein arose from, in connection with, and is allocable to, petitioners' business. Accordingly, the interest expense should be deductible.

Under respondent's regulation and position herein, petitioners' interest expense is not deductible "regardless" of the fact that it was clearly incurred by petitioners in connection with, and that it is undisputably allocable to, petitioners' business. Respectfully, respondent's regulation and position herein should be rejected as an erroneous attempt to redefine the substantive provision of section 163(h)(2)(A).

I reiterate and emphasize that the statute speaks for itself. Thereunder, at the least, if an interest expense clearly relates to and is allocable to a taxpayer's business, it is deductible. Respondent's regulation may provide reasonable methods for allocating interest between a taxpayer's business and personal activities. But if there is no question as to what an item of interest expense relates to, and is allocable to, then the statute is clear and, if the expense relates to the taxpayers' business, the statute allows the deduction. Because section 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., 52 Fed. Reg. 48409 (Dec. 22, 1987), in the context of a sole proprietorship, provides that regardless of that fact, an interest expense is not deductible, respondent's regulation should be considered invalid.

The statute mandates an allocation and allows a deduction for an interest expense related to a taxpayer's business. Respondent's regulation, in the situation of a sole proprietor, would leave nothing to be allocated.

Further, respondent's position herein and her regulation under section 1.163-9T(b)(2)(i)(A), Temporary Income Tax Regs., 52 Fed. Reg. 48409 (Dec. 22, 1987), is inconsistent

with the specific allocation rule provided under section 1.163-8T(c)(3)(ii), Temporary Income Tax Regs., 52 Fed. Reg. 25001 (July 2, 1987), with regard to the frequent situations where no loan proceeds are involved in the underlying transaction or activity (namely, where the seller or provider of goods or services provides the financing to the taxpayer or where the transaction involves interest expenses associated with the mere extension of credit, not the provision of funds). Section 1.163-8T(c)(3)(ii), Temporary Income Tax Regs., supra, provides as follows:

If a taxpayer incurs or assumes a debt in consideration for the sale or use of property, for services, or for any other purpose, or takes property subject to a debt, and no debt proceeds are disbursed to the taxpayer, the debt is treated for purposes of this section as if the taxpayer used an amount of the debt proceeds equal to the balance of the debt outstanding at such time to make an expenditure for such property, services, or other purpose. [Emphasis added.]

The above regulation simply provides that in the many situations where financing or credit transactions do not involve the disbursement of any loan proceeds but do involve the extension of credit and interest charges or expenses therefor, the interest expenses are to be allocated between the taxpayer's business and personal activity based on the nature of the particular underlying activity giving rise to the extension of credit.

Under section 1.163-8T(c)(3)(ii), Temporary Income Tax Regs., supra, even though no loan proceeds were disbursed to petitioners by the Government, credit was extended to petitioners by the Government, and petitioners were charged interest with regard thereto.

Because the underlying activity in question in this case (giving rise to the tax deficiency and to the Government's extension of credit to petitioners) undisputedly relates to petitioners' business, under section 1.163-8T(c)(3)(ii), Temporary Income Tax Regs., supra, the interest expense in question should be treated as allocable to petitioners' business and as deductible under the statute.

COLVIN and LARO, JJ., agree with this concurring opinion.