- 14 -
order to obtain a deduction. * * * [Goldstein v.
Commissioner, 364 F.2d at 742.]
In Lieber v. Commissioner, T.C. Memo. 1993-424, we quoted this
sentence and posed the question whether Goldstein v.
Commissioner, supra, conflicted with the Second Circuit's later
opinion allowing interest deductions in Jacobson v. Commissioner,
supra. Clearly, Jacobson (which did not mention Goldstein)
supports the principle that interest deductions are not rendered
nondeductible merely because the proceeds are used to invest in a
sham tax shelter transaction; in some cases the underlying
indebtedness might still be "economically substantive".4
Jacobson v. Commissioner, 915 F.2d at 840. Jacobson thus
indicates that the language of Goldstein would not apply so
broadly that it would deny all interest deductions that are
related to sham transactions. We believe, however, that
Goldstein continues to apply to the narrower situation where a
taxpayer enters into a borrowing transaction for no purpose other
than to claim the deductions generated by that transaction
4 Indeed, in United States v. Wexler, 31 F.3d 117, 127 (3d
Cir. 1994) the Court of Appeals for the Third Circuit explained:
Rice's Toyota, Jacobson and Lieber indicate that, in
some circumstances, a sham transaction may have
separable, economically substantive, elements that give
rise to deductible interest obligations. * * * [Fn.
ref. omitted.]
The court continued, however, "Yet in each of those cases a key
requirement is that the interest obligation be economically
substantive". Id.
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