Winn-Dixie Stores, Inc. and Subsidiaries - Page 66




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               life into petitioner's cadaver.  [Fn. ref. omitted.]                   
               Petitioner attempts to supplement its argument by citing               
          additional legislative materials related to changes or proposed             
          changes to section 264 in 1984, 1986, 1987, 1988, 1990, 1991, and           
          1996.  We need not address each of the changes and proposals                
          regarding interest deductions on life insurance policy loans.  It           
          is clear that Congress and the Treasury Department were aware of            
          the problems associated with interest deductions on life                    
          insurance loans.  However, we are not persuaded that Congress, by           
          enacting and amending section 264 or other related provisions               
          that restrict the deductibility of interest, intended to allow              
          interest deductions under section 163 based on transactions that            
          lacked either economic substance or business purpose.  In                   
          Knetsch, the Supreme Court noted that nothing in the legislative            
          history of section 264 suggests that Congress intended to protect           
          sham transactions.  Similarly, we find nothing in the more recent           
          legislative history of section 264 suggesting that Congress                 
          intended to allow deductions arising from sham transactions that            
          lacked economic substance and business purpose.                             
               The transactions associated with petitioner's COLI program             
          lacked economic substance and business purpose (other than tax              
          reduction).  As a result, the interest on petitioner's COLI loans           
          was not deductible interest on indebtedness within the meaning of           







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