- 23 -
we expanded our analysis and considered factors beyond physical
control over the borrowed funds. Similarly, in this case, we
cannot ignore the reality that a borrower who borrows funds for
the purpose of satisfying an interest obligation to the same
lender in order to avoid a default does not have unrestricted
control over the borrowed funds in any meaningful sense. In
light of our expanded view of the considerations that must be
taken into account in determining whether a borrower has
unrestricted control over borrowed funds, our earlier opinions in
Burgess, Burck, and Wilkerson, have been sapped of much of their
vitality.20
The issue before us arises when a borrower borrows funds
from a lender and immediately satisfies an interest obligation to
the same lender. In order to determine whether interest has been
paid or merely deferred, it is first necessary to determine
whether the borrowed funds were, in substance, the same funds
used to satisfy the interest obligation. Whether the relevant
transactions were simultaneous, whether the borrower had other
funds in his account to pay interest, whether the funds are
traceable, and whether the borrower had any realistic choice to
use the borrowed funds for any other purpose would all be
20Recent opinions indicate that an expanded "unrestricted
control" test will likely produce the same result as the test
applied in the Fifth and Ninth Circuit Courts of Appeals. See
Alexander v. Commissioner, T.C. Memo. 1995-334; Blumeyer v.
Commissioner, T.C. Memo. 1992-647; Franco v. Commissioner, supra.
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