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Transit's and LWSI's payments to LIIBV which they contend
are interest are similar to the payments in Merryman v.
Commissioner, 873 F.2d 879, 882 (5th Cir. 1989), affg. T.C. Memo.
1988-72; see also Bail Bonds by Marvin Nelson, Inc. v.
Commissioner, 820 F.2d 1543, 1549 (9th Cir. 1987), affg. T.C.
Memo. 1986-23; United States v. Clardy, 612 F.2d 1139, 1151-1152
(9th Cir. 1980); Zirker v. Commissioner, 87 T.C. 970, 976 (1986);
Drobny v. Commissioner, 86 T.C. 1326, 1343 (1986). affd. 113 F.3d
670 (7th Cir. 1997); Karme v. Commissioner, 73 T.C. 1163,
1186-1187 (1980), affd. 673 F.2d 1062 (9th Cir. 1982), in that
the payments did not change petitioners' economic status.
Petitioners contend that these cases are indistinguishable
from Nestle Holdings, Inc. v. Commissioner, T.C. Memo. 1995-441.
We disagree. The taxpayer in that case paid interest and reduced
its overall indebtedness during the years in issue, and its
financial condition was improving. Here, petitioners postponed
interest payments, used debt to finance interest payments, and
continued to increase their indebtedness. In addition, the funds
recipient in Nestle, unlike petitioners, was not highly
leveraged, had reasonably anticipated significant cash-flows
adequate to pay interest and principal, and had liquid assets
which it would use to reduce its indebtedness.
Petitioners contend that their interest reinvestment loans
were merely a device to help LIIBV comply with Dutch tax rulings.
We disagree. Whether or not the interest reinvestment loans had
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