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created the principal benefits of the transaction.
* * * [Wexler v. Commissioner, supra at 125.]
In contrast, in the repo situation--
[Taxpayer's] case differs in a critical respect. There
is no debt obligation that can be separated from the
underlying * * * scheme or that was undertaken for some
reason other than the tax benefits of deducting
interest on that obligation itself. * * * [Id. at 125-
126.]
The Court of Appeals for the Third Circuit noted that in the
repo situation, "the loan * * * is the very obligation that will
generate the interest payments constituting the tax benefits of
the entire transaction." Id. at 126. It accordingly rejected
the taxpayer's argument that the debt was "an economically
substantive 'genuine indebtedness'". Id.
We have applied a distinction similar to that described by
the Court of Appeals for the Third Circuit in Wexler to cases
involving the FTI A/C program. In Seykota II, we determined that
the interest payments were not separable from the underlying
scheme; instead, as we explained, the "interest payments merely
functioned as the first part of a scheme for the mismatching of
deductions and income". We concluded that the FTI A/C
transactions "lacked economic substance or any purpose other than
generating tax deductions". We accordingly denied the interest
deductions at issue.
We returned to that issue in Alessandra v. Commissioner,
T.C. Memo. 1995-238, an opinion issued after Lieber v.
Commissioner, supra. In Alessandra, the issue was whether the
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