- 15 -
itself; such a transaction is not economically substantive. Both
Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89 at 96, and
Rose v. Commissioner, 88 T.C. at 423, specifically distinguish
Goldstein from situations in which interest deductions were
allowable. See Muserlian v. Commissioner, 932 F.2d 109, 113 (2d
Cir. 1991) (decided after Jacobson), affg. T.C. Memo. 1989-493;
see also United States v. Wexler, 31 F.3d at 126 n.11.5
In these cases, as in Seykota II, petitioners have not shown
that interest payments in the FTI A/C transactions were separable
from the interest payments and other deductions "that would have
created the principal tax benefits of the transaction." United
States v. Wexler, supra at 125. The latter type of sham
transactions are those presented in Wexler, Goldstein, Julien,
Sheldon, and, as we held in Seykota II, in the FTI A/C
transactions. In those cases the taxpayers paid no interest on
economically substantive indebtedness that was separable from the
sham transaction itself. Accordingly, we sustain respondent's
disallowance of the interest deductions at issue.6
5 In the Goldstein line of cases--Julien, Sheldon, Wexler,
and, as we held in Seykota II, in the FTI A/C transactions--the
taxpayers borrowed large sums of money and simultaneously entered
into offsetting transactions. These transactions lacked economic
substance. Instead, the effect was that of a taxpayer "actually
borrowing his own money to create interest expense". Muserlian
v. Commissioner, 932 F.2d 109, 113 (2d Cir. 1991), affg. T.C.
Memo. 1989-493.
6 Apparently, the deductions generated by the FTI A/C
transactions included not only the interest deductions at issue,
(continued...)
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