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preclusion applies. In addition, we believe that allowing
petitioners to examine and contest the application of issue
preclusion with respect to the sua sponte issues would be futile.
This Court's official file in Monahan I was admitted as evidence
for the purpose of deciding whether petitioners are precluded
from relitigating the Aldergrove issue, and posttrial briefs were
submitted by the parties to present their respective arguments.
The only difference between the Aldergrove issue and the sua
sponte issues is the date with respect to which this Court in
Monahan I examined petitioner's relationship with Aldergrove.
Under these circumstances, petitioners could add nothing to our
analysis of the sua sponte issues and, therefore, are not
prejudiced by the absence of notice and an opportunity to
respond.
In Monahan I, this Court, among other things, sustained
respondent's disallowance of certain interest deductions claimed
by petitioners for 1987 and 1988. Petitioners reported those
deductions as mortgage interest payments on an alleged loan of
$150,000 from Hansa Finance made in 1986. After concessions,
petitioners argued that they were entitled to deduct a portion of
the interest payments as personal interest under section 163(h),
and respondent argued that the loan and the interest payments
lacked economic substance.
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