- 9 -
Section 461(h)(1) modifies the all events test, providing that
“the all events test shall not be treated as met any earlier than
when economic performance with respect to such item occurs”.
Economic performance with respect to interest occurs as the
interest cost economically accrues in accordance with the
principles of relevant provisions of the Code. Sec. 1.461-4(e),
Income Tax Regs.
Petitioner presents three basic arguments. First,
petitioner asserts that the substance of the disputed transaction
is that of a forward purchase contract and a loan. Second,
petitioner contends that the accrued interest due to SPELI was an
unconditional fixed obligation, which satisfied the all events
test for all the taxable years at issue. Third, petitioner
argues CATCO's intrinsic ability or inability to satisfy the loan
is irrelevant as to whether the accrued interest is deductible.
Respondent argues that the underlying substance of the
transaction is in dispute. Respondent further contends that a
reasonable inference may be drawn from all of the facts available
that the disputed transaction is a "best efforts" consignment
contract with CATCO serving as a sales agent for either SPELI or
American and that the interest represents a sharing of profits on
resale of the aircraft. Respondent alternatively argues that
even if petitioner is correct, the facts are not sufficiently
well developed to warrant a finding that the all events test is
satisfied. Respondent further argues CATCO's ability to pay
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011