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fail in the face of Citizens & Southern Corp. v. Commissioner,
supra, and IT&S of Iowa, Inc. v. Commissioner, 97 T.C. 496
(1991).” Peoples Bancorporation & Subs. v. Commissioner, supra.
Similarly, we believe respondent’s attempts to characterize the
economic benefit inherent in petitioner’s below-market financing
as a liability is misplaced, and for similar reasons we cannot
accept that characterization.
Respondent also argues that petitioner’s claiming of
amortization deductions with respect to its financing
arrangements constitutes an impermissible “loop” around the
interest deductions rules of section 163 and the rules applicable
to original issue discount (OID). Respondent argues:
Petitioner claims a deduction based on the net
present value differential as of January 1, 1985,
between the hypothetical future cash flows at market
rates over prospective future cash flows based on the
actual contract rates on the relevant instruments.
This differential, in effect, is analogous to discount,
which is a substitute for interest. Therefore, the
petitioner is claiming deductions under I.R.C. � 167
for what is inherently an interest item–discount or
interest subject to the rules for deductibility under
I.R.C. � 163. [Fn. ref. omitted.]
We are not persuaded that petitioner’s treatment of its favorable
financing implicates section 163 or the OID rules. Petitioner’s
favorable financing is an economic benefit which arises from the
below-market rates of interest on January 1, 1985, and the
expectation of cost savings from its existing financing
arrangements. Again, this economic benefit is not a liability;
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