- 18 -
the investment. See Indian Trail Trading Post, Inc. v.
Commissioner, supra at 501.
V. Conclusion
We are convinced that Waldorf II incurred a substantial
portion of the 1987 indebtedness to fund the Investment Divisions
and that the Investment Divisions used the borrowed funds to
purchase and carry tax-exempt obligations and portfolio stock
during the 3 years in issue. Therefore, we have no doubt that a
portion of the 1987 indebtedness was incurred to purchase and
carry tax-exempt obligations (held in the Investment Divisions)
for the purpose of section 265(a)(2) and that a portion of the
indebtedness is directly attributable to the purchase and
carrying of portfolio stock (by the Investment Divisions) for the
purpose of section 246A. We note, however, that in a less clear-
cut case we would be substantially aided in reaching a decision
by the regulations called for by section 7701(f).
Decision will be entered
under Rule 155.
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