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Treasury bill (or T-Bill) by selling the T-Bill to another party
with an agreement to repurchase the T-Bill, for the original
selling price plus interest, on or before the T-Bill's maturity
date. We observed that the transactions were designed so that
the interest that the taxpayer paid in repurchasing the T-Bill
was greater than the interest actually paid by the T-Bill during
the period the repo was in effect. We found that the repo
transactions were without substance beyond the anticipated tax
consequences of generating interest deductions. Citing
Goldstein, we explained that "loans or other financing
transactions will merit respect and give rise to deductible
interest only if there is some tax-independent purpose for the
transactions." Sheldon v. Commissioner, supra at 759.3
These cases present the issue of the deductibility of
interest in FTI A/C transactions. In these transactions, the
investors borrowed money which was used to buy gold. Their
investments were "hedged" by alleged trades in options for U.S.
Treasury obligations. The transactions generated interest and
other deductions. The investors recovered their investment in
3 In Sheldon v. Commissioner, 94 T.C. 738, 767 (1990), we
noted that some of the transactions at issue presented "a small
potential for gain". We nonetheless found Goldstein v.
Commissioner, 364 F.2d 734 (2d Cir. 1966), affg. 44 T.C. 284
(1965), dispositive, stating: "The principle of that case would
not * * * permit deductions merely because a taxpayer had or
experienced some de minimis gain." Sheldon v. Commissioner,
supra at 767; see Lifschultz v. Commissioner, 393 F.2d 232 (2d
Cir. 1968), affg. T.C. Memo. 1966-225.
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