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Petitioners’ claims and arguments in support of
Intercoastal/Machise's deductions of interest lack the specifics
needed to make a detailed analysis. Respondent claims that the
disallowed interest is that paid by Machise on its notes to the
investors or to Qulart, plus that paid upon Machise's line-of-
credit borrowings from BBPA. Petitioners state that there was no
interest paid on Machise's notes to the investors or to Qulart;
the interest at issue related only to the line-of-credit loans
from BBPA. On brief, neither party asserts that the "late fees"
payable on the postponed compensation fees are implicated (the
disallowed interest deductions for the fiscal years ending in
1982 through 1986 were substantial, leading us to believe that
more than the letter-of-credit interest is at issue). In any
event, petitioners have not shown that the accrual and deduction
of interest payments by Machise reflected economic substance.
The interest claimed as deductions by Machise in the
employee leasing transactions was only "paid" pursuant to
obligations in the repayment circle of notes and journal entries
that made up the employee leasing financial structure. Machise
paid no cash in the form of such interest; instead it accrued
these amounts only as part of the repayment circle. Any payment
took the form of offsets that circled from Machise to BBPA, or to
the partnerships, to the partners, and then back to Machise. As
obvious response to this complaint is that the tax liabilities of
BBPA, MITA, and Bucci are not now before us.
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