- 110 -
b. Petitioner's Alternative Arguments
Petitioner advances alternative arguments applicable to
certain of the Bank transactions (viz., BB Loan No. 1, BB Loan
No. 2, BB Loan No. 3, the UB $570,000 renewed loan, and the UB
$325,000 loan) in an effort to establish that the form of those
transactions should be respected. Petitioner argues that in the
event BB Loan No. 1 were recharacterized in the manner sought by
respondent, that loan should be treated as a loan from a foreign
lender to Radcliffe only to the extent of the Intercontinental
$450,000 deposit. Petitioner also argues that interest paid
after July 18, 1984, with respect to the Bank transactions that
were, in form, secured by deposits in the name of Intercontinen-
tal, Traveluck, Double Wealth, and Forward should not be subject
to tax and withholding because interest payable on indebtedness
of Radcliffe and of BOT to those corporations after that date is
or could have been exempt from tax and withholding as portfolio
interest under section 881(c)(2).77
B. Horbury Transaction
1. Respondent's Position
While conceding that a loan, in fact, was made to BOT in the
77 Petitioner does not otherwise argue and has presented no
evidence that, assuming arguendo we were to sustain respondent's
determinations with respect to the Bank transactions, a portion
of the interest that Radcliffe and BOT, in form, paid with
respect to the Bank loans should not be subject to tax and
withholding because such portion was retained by the U.S. banks
in question (as, for example, a fee for serving as a conduit) and
was not, in substance, paid to any of the foreign corporations
pledging collateral. Consequently, we do not consider that
question.
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