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employees. Neither of those reasons is inconsistent with what we
find to be the dominant objective in incurring the 1987
indebtedness, to make a cash distribution to HEI in order to
allow HEI to purchase tax-exempt obligations and domestic shares.
See generally Leslie v. Commissioner, 413 F.2d 636 (2d Cir. 1969)
(business reasons not related to the purchase of tax-exempt
securities must dominate the incurring of indebtedness to
insulate the borrowing from application of section 265(a)(2)),
revg. 50 T.C. 11 (1968).
Petitioner argues that there is no evidence that HEI or
Waldorf II contemplated investing in tax-exempt obligations or
domestic shares at the time Waldorf II incurred the 1987
indebtedness and that, at the time, it made no economic sense to
borrow in order to make such investments. We cannot look into a
taxpayer's mind to determine the purpose of incurring
indebtedness; we must infer that purpose from the evidence.
Indian Trail Trading Post, Inc. v. Commissioner, 60 T.C. 497, 500
(1973). HEI received regular reports on the investments held in
the Investment Divisions, including reports of its after-tax
returns, and we are not inclined to second-guess its investment
decisions. See generally Illinois Terminal R.R. v. United
States, 179 Ct. Cl. 674, 375 F.2d 1016, 1021-1022 (1967)
(taxpayers need not receive economic benefits from tax-exempt
securities for section 265(a)(2) to apply).
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