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standing alone, did not create unconditional debt obligations.
Considering the narrow basis for Judge Goffe's holding, we are
convinced that Mr. Thompson's testimony was not material to this
holding.
Judge Goffe sustained respondent's disallowance of
deductions for subscription interest under the stock subscription
plan and the leasing corporation plan on the ground that such
interest was not "paid" within the meaning of section 163(a) by
virtue of Mr. Kersting's practice of waltzing loan funds. Judge
Goffe identified two specific instances in which Mr. Kersting
waltzed funds affecting both primary and leverage loans
underlying the stock subscription plan. Mr. Thompson's testimony
was not material to Judge Goffe's finding that Mr. Kersting made
a practice of waltzing loan funds.
Judge Goffe held that primary loans, although recourse in
form, did not represent genuine debt in substance because of
several factors. First, Judge Goffe found that Mr. Kersting and
program participants had an understanding at the commencement of
a program that a primary loan obligation could be satisfied in
full at any time by a mere surrender of the associated stock
certificate. In so holding, Judge Goffe rejected Mr. Kersting's
testimony that he did not represent to program participants that
they could exchange their stock for cancellation of a primary
note at any time. To the contrary, Judge Goffe listed nine
items, including Mr. Thompson's testimony on the subject, in
support of his finding of a pervasive stock surrender policy.
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