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Petitioners have failed to persuade us that we should treat their
circular money movements as anything other than shams.
Additionally, petitioners have failed to persuade us that
the transactions were entered into for reasons other than tax
avoidance. Petitioners admit on brief that "had they been
informed that the Netherlands Antilles treaty exemption for
interest would not expire on January 1, 1988 * * * they would
have simply signed the notes to Manver, paid interest thereon
until the notes were paid off, and completely avoided the
commercial paper headaches." Santandreu testified that the
reason the commercial paper was issued was "to have the
advantages of not paying withholding on the interest." Both of
these explanations support the conclusion that the transactions
were entered into solely for tax-avoidance purposes.
Petitioners deducted the guarantee fees as an "ordinary and
necessary" business expense under section 162. Petitioners rely
on A.A. & E.B. Jones Co. v. Commissioner, T.C. Memo. 1960-284,
and argue that, because the amount of the guarantee fees did not
exceed amounts that would have been charged to an unrelated
party, the fees were reasonable for purposes of section 162(a).
In that case, surety companies would not issue bonds to cover
corporate contracts without the personal guarantees of the Jones
brothers. While we looked at the reasonableness of the guarantee
fees, there was no issue as to whether the guarantee fees were
ordinary and necessary.
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