Dwight E. and Leslie E. Lee - Page 11

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            that the debt secured by the short-term recourse note was valid                           
            and that the taxpayer could deduct interest paid on that note to                          
            the lender.                                                                               
                  We adopted the reasoning of Rice's Toyota World, Inc. in                            
            Rose v. Commissioner, 88 T.C. 386, 423 (1987), affd. 868 F.2d 851                         
            (6th Cir. 1989).  Accordingly, our opinions in Lieber and                                 
            Jacobson conclude that, in situations such as that presented in                           
            Rice's Toyota World, Inc., the interest is deductible.                                    
                  The situation in the Rice's Toyota World, Inc. line of                              
            cases, which allows interest deductions, is, however,                                     
            distinguishable from the situation in the Goldstein v.                                    
            Commissioner, 364 F.2d 734 (2d Cir. 1966), line of cases, wherein                         
            the courts have disallowed the claimed interest deductions.  The                          
            Court of Appeals for the Third Circuit has provided a detailed                            
            discussion of that distinction in United States v. Wexler, 31                             
            F.3d 117, 125-127 (3d Cir. 1994).  There the Court of Appeals had                         
            before it a repo transaction, virtually identical to that                                 
            addressed in Sheldon v. Commissioner, 94 T.C. 738 (1989), and                             
            similar in concept to the situations in Goldstein, Julien v.                              
            Commissioner, 82 T.C. 492 (1984), and Seykota.                                            
                  Addressing first the transaction that yielded deductible                            
            interest in Rice's Toyota World, Inc., the Court of Appeals for                           
            the Third Circuit explained:                                                              
                  [The] transaction was unusual because the interest                                  
                  payments on the recourse note were separable from the                               
                  interest payments and depreciation that would have                                  




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