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deduct this amount under section 163(a). The taxpayer offered
evidence that she reasonably expected to profit from the
transactions based upon assumptions related to the movement of
Treasury rates.
The Court of Appeals for the Second Circuit dismissed the
argument that the taxpayer reasonably expected to profit from the
transactions on the grounds that the taxpayer’s profit
projections did not account for transaction costs of $6,500 and
were based on unreasonable assumptions that the Treasury notes
could be sold considerably in excess of par. The Court of
Appeals further held that “to allow a deduction for interest paid
on funds borrowed for no purposive reason, other than the
securing of a deduction from income, would frustrate section
163(a)’s purpose; allowing it would encourage transactions that
have no economic utility and that would not be engaged in but for
the system of taxes imposed by Congress.” Goldstein v.
Commissioner, 364 F.2d at 742. In short, the taxpayer’s
investment did not meaningfully change her economic position, and
it therefore lacked economic substance.
The same may be said of Brunswick’s involvement in the CINS
transactions. The intricate manipulation of the contingent
installment sales rules in this case could not conceivably be the
type of economically sterile transaction Congress intended to
sanction. At the end of the day, Brunswick’s involvement in the
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