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economic profit and ‘solely’ in order to secure a large interest
deduction * * * [to offset her sweepstakes winnings].” Id. at
740. The court found that Congress intended to limit interest
deductions under section 163(a) to interest on debt incurred for
“purposive activity”, and it held that that section did not
permit a deduction for the interest paid by Mrs. Goldstein where
the sole purpose of her borrowings was to generate tax deductible
interest. Id. at 740-742.
Because Countryside, like Mrs. Goldstein, could not
realistically profit from investing in the AIG notes at a lower
rate of return than it was required to pay on the loans used to
make that investment, respondent considers the facts in the
Goldstein case “analogous” and the result controlling of the
result herein. Participating partner responds: “Goldstein,
properly understood, stands for the limited proposition that,
when a taxpayer * * * [borrows] for the sole purpose of claiming
a tax deduction for the interest expense, the interest is not
deductible.” He notes that the Court of Appeals for the Second
Circuit respected the debt as bona fide, while disallowing the
interest deduction for lack of any “purposive activity” in
incurring the debt. He concludes: “There is no basis for
contending that a similar ‘purposive activity’ concept is present
in Code section 752, and there is thus no basis for attempting to
extrapolate from Goldstein to the present case.” We interpret
participating partner’s argument to be that, because neither
business purpose nor economic substance considerations affect the
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