Alfonso J. Mollica CPA.
Your question isn't clear as to where the interest deduction is being claimed to be deductible. Corporation or personal.
$ 700,000 should be booked into the corporation to pay off the tax debts, and offset to a loan payable account or shareholder loan. I believe the TCJA put in some restriction on the amount of interest expense to deduct (Section 163j) and preparation of Form 8990. But you need to read the specific provisions for applicability. Depending upon how the loan was written, if a shareholder loan, isn't interest on loans in excess of $ 10,000 supposed to be calculated with deemed interest income to shareholder under the less-than-market rate loan theory?
As far as his PERSONAL tax return interest - I believe the accountant is correct because the interest on $ 50,000 is investment interest as it was taken to protect his investment in the corporation.
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