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Finally, petitioner argues that HEI had business reasons for
holding a liquid, diversified investment portfolio that included
tax-exempt obligations and domestic shares. Petitioner relies on
Swenson Land & Cattle Co. v. Commissioner, 64 T.C. 686 (1975),
and points to HEI's objectives of having capital available to
support possible acquisitions of other businesses in the future
and having sufficient liquidity to fund redemptions in case of
the death of a principal shareholder or on account of disputes
among the shareholders. In Swenson, we were persuaded that the
taxpayer was considering detailed and concrete proposals for
expansion that justified a large contingency reserve of liquid
funds. Here, HEI had no specific plans for the borrowed funds,
other than funding the Investment Divisions, which were set up
during the restructuring of the Waldorf business, and, although
petitioner has demonstrated that there were disputes among the
shareholders that may have made it advisable to plan for a stock
redemption, those disputes arose after the restructuring plan was
implemented. Nor has petitioner offered any sufficient business
reason for HEI's maintaining millions of dollars in liquid
reserves for over 3 years. See, e.g., New Mexico Bancorp. &
Subs. v. Commissioner, 74 T.C. 1342 (1980). Whatever HEI's
ultimate objectives for the borrowed funds may have been, its use
of those funds for investments in the relevant years provides the
"necessary purposive connection" for us to link the borrowing and
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