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portion of the trust income to petitioner. It does not provide
for the disallowance of the interest expenses claimed by him.
Indeed, the net result to the grantor may be no increase in tax
because the trusts' interest income taxed to the grantor may be
offset by a deduction for interest on the loans. See Bittker &
Lokken, Federal Taxation of Income, Estates and Gifts, par. 80.7
at 64.
Respondent relies on Benson v. Commissioner, 76 T.C. 1040
(1981); Bixby v. Commissioner, 58 T.C. 757 (1972); and Bennett v.
Commissioner, 79 T.C. 470 (1982). Such reliance is misplaced.
Those cases are distinguishable. In Benson the loan was
unsecured, and the grantor's spouse was the sole trustee. In
Bixby the settlors were held not to be the true grantors for
purposes of the grantor trust rules. Rather, the subsequent
transferors were the actual grantors. There was no discussion of
section 675(3) in the Bixby case. In Bennett the grantors were
the trustees, and the loan was unsecured.
Accordingly, as reflected in our findings of fact, we hold
that the interest deductions claimed by petitioner in 1980 and
1981 as paid to the trusts on the secured loans are deductible.
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