- 66 -
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
Page: Previous 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 NextLast modified: May 25, 2011