- 241 -
i. Subscription Interest
Relying upon the specific language in the stock subscription
agreements underlying the stock subscription plan and the leasing
corporation plan, Judge Goffe held that the agreements, standing
alone, did not create an unconditional debt obligation. See id.
at 1494-1496, 1991 T.C.M. (RIA), at 91-3038 to 91-3040.
Judge Goffe further denied deductions for subscription
interest under the Stock Subscription and Leasing Corporation
Plans on the ground that such interest was not "paid" within the
meaning of section 163(a). In so holding, Judge Goffe focused on
Mr. Kersting's practice of carrying out a circular flow of checks
among Kersting corporations and investors at the same bank on the
same day--the so-called waltz of funds. See, e.g., Davison v.
Commissioner, 107 T.C. 35 (1996), affd. per curiam 141 F.3d 403
(2d Cir. 1998). In particular, Judge Goffe identified two
specific instances in which Mr. Kersting waltzed funds affecting
Stock Subscription Plans. In one instance, Mr. Kersting waltzed
primary loan funds; in the other instance, he waltzed leverage
loan funds. Relying upon evidence that there were several other
potential waltz situations across the board with respect to the
stock purchase plan, the stock subscription plan, and the leasing
corporation plan, Judge Goffe found that waltzes were essential
elements of all the Kersting stock transactions. See Dixon II,
62 T.C.M. (CCH) at 1496-1499, 1991 T.C.M. (RIA), at 91-3040 to
91-3043.
Page: Previous 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 NextLast modified: May 25, 2011