- 7 -
the claimed interest deductions at issue because the taxpayer had
failed to prove that the transactions giving rise to such
deductions had actually taken place. In one instance, however,
we accepted the taxpayer's representation that he had purchased
silver worth $1,033,280 on October 31, 1975, and simultaneously
agreed to sell the same amount of silver at a price of $1,058,776
on January 6, 1976. There was thus an indicated gain of $25,496.
The taxpayer borrowed the purchase price from an affiliate of the
promoter. The taxpayer paid $24,996.81 as interest on that
amount on December 19, 1975. He paid commissions of another
$662. The terms of his loan agreement effectively precluded him
from further disposition of either the silver he had purchased or
his contract to sell that silver. There was thus no way for the
taxpayer to profit from that transaction; his indicated gain of
$25,496 was more than offset by his interest and commission
expenses. We disallowed the deduction of the interest expense
for 1975. Quoting Goldstein v. Commissioner, supra at 742, we
stated: "Section 163(a) does not 'intend' that taxpayers should
be permitted deductions for interest paid on debts that were
entered into solely in order to obtain a deduction." Julien v.
Commissioner, supra at 509.
We applied the same principle in Sheldon v. Commissioner, 94
T.C. 738, 760-762 (1990). There the issue was whether certain
repurchase agreements, called "repos", generated interest
deductions. A repo is an agreement to finance the purchase of a
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011