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We reject the contentions of both parties. There is no
dispute herein that Radcliffe and BOT borrowed funds or that they
paid deductible interest on those borrowed funds. The only
dispute relates to the identity of the lenders of those funds and
of the payees of that interest.
With respect to respondent's contention (viz., an additional
reason for the Bank transactions was to generate interest deduc-
tions for Radcliffe and for BOT for the years at issue),
Radcliffe and BOT are entitled to interest deductions on the
funds they borrowed regardless whether we sustain respondent's
theory or petitioner's theory of these cases. Accordingly, we
conclude that the interest deductions claimed by Radcliffe and
BOT for the years at issue with respect to the Bank transactions
do not necessarily indicate a tax avoidance purpose by Radcliffe
or by BOT for those transactions.
With respect to petitioner's contention (viz., the Bank
transactions should not be recharacterized since Radcliffe and
BOT received little benefit from their interest deductions for
certain years at issue and no benefit for other years), the issue
in these cases concerns the respective obligations of Radcliffe
and BOT under section 1442(a) to withhold tax on the interest
that was, in form, paid to the U.S. banks in question, and not
the Federal income tax imposed on the respective income of
Radcliffe and BOT. If we were to sustain respondent's theory
that each of the Bank loans at issue was, in substance, a loan to
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