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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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