Igboke v. Commissioner, Bench Opinion, Docket No. 12275-24 (U.S. Tax Ct. June 3, 2026)

In the recent decision of Igboke v. Commissioner, the U.S. Tax Court addressed a fundamental issue regarding the deductibility of mortgage interest: whether taxpayers may claim a deduction for interest that was neither paid nor accrued during the relevant taxable year. For tax practitioners, this case serves as a stark reminder of the heavy burden placed on taxpayers to substantiate deductions and the dangers of relying on unsubstantiated "carryover" theories that lack statutory support, especially when the taxpayer is a CPA with years of tax experience who states he got this theory from his lender.

Background and Factual Context

The litigation arose from a deficiency notice issued by the Commissioner regarding the 2021 tax year for petitioners Henry O. Igboke and Clara Igboke. The taxpayers’ mortgage history involved several entities, including Bank of America N.A., Select Portfolio Servicing, Inc. (SPS), and eventually SchoolsFirst Federal Credit Union via Cenlar FSB.

Records indicate that in July 2020, the Igbokes refinanced their obligations through Cenlar. Crucially, the evidence demonstrated that a previous loan with SPS had been "paid in full as of 07/28/2020," and the transaction history from SPS confirmed there were "no payments of any kind after July 2020." While Cenlar reported $18,411 in mortgage interest paid during 2021 on Form 1098, the Igbokes claimed a significantly higher amount of $40,208, representing an excess of $21,797 over the reported amount.

Taxpayer's Argument for Additional Deductions

To justify the discrepancy, the petitioners presented what they characterized as a "Substitute Form 1098" from SPS and a letter purportedly from SPS stating that $31,635 in interest had been paid in 2021. Mr. Igboke, a CPA with over 30 years of experience, argued that these documents substantiated the additional deduction.

The taxpayers' underlying theory was based on an alleged carryover. Mr. Igboke contended that because the taxpayers were unable to deduct the full $71,618 of interest paid in 2020, SPS had advised him that a portion of that amount could be carried over and deducted in 2021. Essentially, the petitioners sought relief by treating unallowed mortgage interest from a prior year as deductible in the subsequent year.

Statutory Framework Governing Interest Deductibility

The Court’s analysis centered on the strict requirements of the Internal Revenue Code regarding interest expenses. While I.R.C. § 163(a) allows for a deduction for "all interest paid or accrued within the taxable year on indebtedness," this is subject to significant limitations for individuals under I.R.C. § 163(h).

The Court noted that while "qualified residence interest" is excluded from the definition of non-deductible personal interest under I.R.C. § 163(h)(2)(D), the fundamental requirement remains that the interest must be "paid or accrued within the taxable year." I.R.C. § 163(a); see also I.R.C. § 163(h)(3)(A). For cash-basis taxpayers, the Court emphasized the principle established in Smoker v. Commissioner, T.C. Memo 2013-56, explaining that "a cash-basis taxpayer 'may not deduct any accrued but unpaid interest until he actually discharges his obligation to pay the accrued interest'."

Judicial Scrutiny of Substantiation and Legal Authority

The Court applied these principles to the facts and found the taxpayers' position indefensible. The scrutiny focused on two primary areas: the authenticity of the evidence and the lack of legal authority for a mortgage interest carryover.

Regarding substantiation, the Court expressed "serious reservations about the authenticity" of the petitioners' documents. The Judge observed that the purported 2021 Substitute Form 1098 "appears to be an altered photocopy of the 2020 Form 1098 from SPS," noting that even the year had been manually changed with irregular photocopier markings. Furthermore, the recordkeeper for SPS testified that they could not find copies of these documents in their files. The Court concluded that "these documents are not authentic and were created for the purpose of supporting the Igbokes' claimed deduction."
On the legal merits, the Court rejected the taxpayer's carryover argument. Mr. Igboke admitted during trial that "the Igbokes had no outstanding loan with SPS in 2021 and paid no interest to SPS in 2021." Because no debt existed, no interest could have been paid or accrued. The Court further noted that Mr. Igboke failed to identify any statutory authority—such as I.R.C. § 163(d)(2), I.R.C. § 163(h)(4)(F), or I.R.C. § 461(g)—that would allow for the carryforward of mortgage interest under these specific circumstances.

Final Determination

Ultimately, the Court found that the taxpayers failed to meet their burden of proof under Tax Court Rule 142(a). The Judge's decision was unequivocal: "The answer is no" regarding the claim for interest not actually paid in the taxable year. Because the petitioners could not establish the existence of a loan or any legal basis for an interest carryover, the Court concluded that "the Igbokes are not entitled to deduct the amount they claimed as mortgage interest relating to SPS in 2021." Consequently, decision was entered for the Respondent.

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