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we applied in Seykota II controls here and that the interest
deductions are not allowable.
Petitioners, however, argue that our holding in Seykota II
has been vitiated by our subsequent opinion in Lieber v.
Commissioner, T.C. Memo. 1993-424. In Lieber, the Commissioner
disallowed deductions relating to a computer leasing tax shelter.
The Court held that the majority of the deductions at issue were
not allowable. The Court, however, permitted the taxpayers to
deduct interest paid upon indebtedness they incurred in order to
invest in the computer leasing transaction. In so holding, the
Court quoted, as dispositive precedent, the following language
from Jacobson v. Commissioner, 915 F.2d 832, 840 (2d Cir. 1990),
revg. on other grounds T.C. Memo. 1988-341:
Even if the motive for a transaction is to avoid taxes,
interest incurred therein may still be deductible if it
relates to economically substantive indebtedness.
Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89,
96 (4th Cir. 1985). * * *
Both Lieber and Jacobson explicitly adopt the holding in
Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89, 96 (4th
Cir. 1985), affg. in part and revg. in part 81 T.C. 184 (1983).
Rice's Toyota World, Inc., addressed the case of a taxpayer who
borrowed money to invest in a tax shelter. Part of the
indebtedness was secured by a short-term recourse note. The
Court of Appeals for the Fourth Circuit affirmed our disallowance
of most of the deductions at issue. With respect to the
taxpayer's loan transaction, however, the Court of Appeals found
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