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were among the deductions whose deductibility was decided in a
test case. Finkelman v. Commissioner, T.C. Memo. 1989-72.
The major issue considered in Finkelman involved the tax
consequences of leveraged real estate transactions. The focus of
the Court's inquiry was whether the transactions should be
disregarded for Federal income tax purposes because they lacked
economic substance and/or were primarily tax motivated. The
Court determined that the transactions were lacking in economic
substance and profit objective and, accordingly, were not to be
respected for tax purposes. Although the deductions were not
allowed, the Court declined to sustain the section 6653(a)
negligence additions to tax against the promoter. In so holding,
the Court explained that the taxpayer's favorable financing
argument was not an "untenable" theory, that it had "some support
in the case law", and that "the claimed losses were supported by
a credible and unprecedented (albeit erroneous) theory".
Petitioner claims that the holding in Finkelman that the
transactions lacked economic substance and that there was no
profit objective mandates the conclusion that the deductions can
have no basis in law. We cannot agree with petitioner.
The Court in Finkelman acknowledged that, although the
transactions were not reasonable, "That does not, however, render
petitioner's theory untenable." Finkelman v. Commissioner,
supra. Despite the Court's rejection of the taxpayer's arguments
in that case, they were "not without some support in the case
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