- 15 -
borrower acquired possession or control over the proceeds of the
second loan. This was later referred to as unrestricted control.
See Menz v. Commissioner, 80 T.C. at 1187.
In Burck v. Commissioner, 63 T.C. 556 (1975), affd. on other
grounds 533 F.2d 768 (2d Cir. 1976), a cash basis taxpayer
borrowed $5,388,600 from a bank on December 29, 1969. Pursuant
to negotiations that preceded the loan agreement, $1 million of
these proceeds was deposited into the taxpayer's account at a
second bank. Prior to this deposit, the taxpayer's other funds
in the account totaled $42,009.02. On December 30, 1969,
pursuant to the negotiated agreement between the lender and the
taxpayer, $377,202 was transferred from the taxpayer's account
back to the lender for 1 year's prepaid interest on the loan.
We concluded that the facts in Burck were within the scope
of our decision in Burgess v. Commissioner, supra, and allowed
the interest deduction. In reaching this decision, we relied
primarily on the fact that the loan proceeds were commingled with
the other funds in the taxpayer's account. We also pointed out
that the taxpayer owned other assets from which the interest
could have, if need be, been prepaid, even though the taxpayer's
bank account contained insufficient funds to pay the interest.13
13The Court considered the taxpayer's nonliquid assets in
making this determination, even though there was no indication
that these assets could have been liquidated to make the required
interest prepayment in December 1969. See Burck v. Commissioner,
63 T.C. 556, 557 n.2 (1975), affd. on other grounds 533 F.2d 768
(continued...)
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