- 107 -
and explained:
This argument is meritless because both corporations
were controlled by * * * [a promoter] * * *; while in
theory such interference might have occurred, it was
realistically impossible. Therefore, we conclude that
the transactions that resulted in the circular flow of
the $900,000 proceeds of the bank loans were shams
entered into solely to create the illusion of research
and experimental expenditures, while in substance
insuring that no part of such funds would be so used.
[Id. at 1346.]
In Karme v. Commissioner, 73 T.C. 1163 (1980), affd. 673
F.2d 1062 (9th Cir. 1982), the taxpayer, in an effort to reduce
his taxes, purportedly borrowed money to purchase stock in a
corporation. The purchase would take place "if and when" a
public offering of that corporation's stock occurred. The
resulting transactions, designed by Harry Margolis, all occurred
on December 16 and 17, 1969. They began with the taxpayer's
borrowing $600,000 from the Union Bank in California. That bank
then wired that amount to the account of a company named World
Minerals at Banco Popular in the Netherlands West Antilles. The
$600,000 then moved to another account, held by an entity named
Alms, at the Banco Popular. Alms then "loaned" that amount to
the taxpayer by transferring it to the taxpayer's Union Bank
account. On December 17, 1969, Union Bank used the amount to
repay the taxpayer's loan. The taxpayer wrote a check to Alms
for $60,000 as interest, but only after receiving a $50,000 loan
from another Margolis entity named Anglo-Dutch Capital. (The
$10,000 difference was later credited to the taxpayer for his use
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