H Enterprises International, Inc., and Subsidiaries - Page 16

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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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