Court Opinion

ID: 4486432
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:25.90898+00
Date Added: 2024-06-11T15:03:49.415135
License: Public Domain

WELLS, J., concurring in part and dissenting in part: I respectfully disagree with the majority’s conclusion that all of the repos lacked economic substance and should therefore be disregarded for Federal income tax purposes. Although the majority purports to follow Goldstein v. Commissioner, 364 F.2d 734 (2d Cir. 1966), affg. 44 T.C. 284 (1965), the majority applies a new test for economic substance, one lacking any support in precedent, in order to disregard the repos. Goldstein, which I agree speaks to the issue before us, requires that some of the repos be respected for Federal income tax purposes, as discussed below. Economic Substance As noted, the majority applies an incorrect test for determining economic substance. Specifically, it holds that the repo-financed T-Bill purchases do not give rise to deductible interest because the potential profit from the transactions was nominal “in comparison with the claimed deductions.” Majority op. at 768. I have found no authority for comparing potential profit with expected tax benefits when evaluating a transaction for economic substance. Rather, the economic-substance inquiry until now has been whether a transaction was “imbued with tax-independent considerations.” Frank Lyon Co. v. United States, 435 U.S. 561, 572 (1978); Hulter v. Commissioner, 91 T.C. 371, 388 (1988). The test has been no different for loan transactions. In Goldstein v. Commissioner, 364 F.2d at 740, cited extensively by the majority, the Court of Appeals for the Second Circuit held, “Section 163(a) * * * does not permit a deduction for interest paid or accrued in loan arrangements, * * * that can not with reason be said to have purpose, substance or utility apart from their anticipated tax consequences.” To date the only instances I can find in which we have compared potential profit with expected tax benefits me those in which we have evaluated a transaction for profit objective. The case often cited, although not by the majority, as authority for such an analysis is Estate of Baron v. Commissioner, 83 T.C. 542 (1984), affd. 798 F.2d 65 (2d Cir. 1986), in which we stated, we are not suggesting that there must always be a dollar-for-dollar matching [of pretax profit and tax benefits] * * * . Instead, we conclude that an intermediate position will usually be in order, namely, that the disparity between before-tax. profit and tax benefits be weighed in the context of all the factors involved in determining the existence of the requisite profit objective, * * * [83 T.C. at 558. Second emphasis supplied.] I believe the majority improperly evaluates the transactions in issue for economic substance by applying a test that heretofore has been used only in determining whether a taxpayer had an actual and honest profit objective for section 183 purposes. In Knetsch v. United States, 364 U.S. 361 (1960), the progenitor of Goldstein v. Commissioner, supra, and other cases deciding whether debts have economic substance and therefore give rise to deductible interest, the Supreme Court warned against confusing the issues of economic substance and profit objective. The Court stated, We put aside a finding by the District Court that Knetsch’s “only motive in purchasing these 10 bonds was to attempt to secure an interest deduction.” As was said in Gregory v. Helvering, 293 U.S. 465, 469, 55 S. Ct. 266, 267, 79 L.Ed. 596: “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. * * * But the question for determination is whether what was done, apart from the tax motive, was the thing which the statute intended.” [364 U.S. at 365. Fn. ref. omitted.] See also Rose v. Commissioner, 88 T.C. 386, 423 (1987), affd. 868 F.2d 851 (6th Cir. 1989) (“The requirement of a profit objective is not one of the limitations in section 163 on the deduction of interest actually paid.”) Thus, in examining the transactions in issue for economic substance, I suggest that we should ask whether, viewed objectively, they had tax-independent purpose. If they did, they were within the intendment of section 163. Goldstein v. Commissioner, 364 F.2d at 741. The majority, rather than applying that settled principle, sets forth a new “de minimis” test for economic substance that I believe will have significant ramifications beyond the instant case.1 Such a new test could require us to substitute our business judgment for that of taxpayers and disregard, for Federal income tax purposes, those transactions lacking sufficient potential profit in light of expected tax benefits. For example, applying such a test to sale and leaseback transactions, will we have to determine not only whether a transaction offers “a realistic opportunity of producing a profit” (Levy v. Commissioner, 91 T.C. 838, 854 (1988)), but also whether the potential profit from residual values is de minimis when compared to expected tax benefits? Assuming an inquiry into whether a transaction offers enough profit is appropriate (and as indicated above, I believe it is not), then the proper analysis should be to compare the potential profit with the investment,2 rather than to compare the potential profit with the expected tax benefits, as suggested by the majority, and heretofore a section 183 inquiry. I note also that in Estate of Baron, the inquiry was weighed along with other factors. Goldstein v. Commissioner, 364 F.2d at 741, requires that borrowing be “purposive” in order to have substance. Borrowing satisfies that requirement if it enables a taxpayer to engage in an activity offering some return on investment. In the instant case, GSDII’s cash investment in the T-Bill transactions was $55,964.29 (the sum of the “haircuts”).3 While GSDII lost $59,690.94 as a result of the transactions, it could have profited as much if interest rates had declined as much as GSDII had expected. GSDII, in fact, enjoyed a net profit of $18,380.61 from nearly identical transactions entered into in 1982. Assuming4 GSDII paid haircuts totaling the same percentage of T-Bills purchased as it did in 1981,5 then its return on investment would have been 64 percent.6 I fail to see how borrowing in order to realize a potential 64-percent return is purposeless. Neither, in light of GSDll’s small exposure in these highly-leveraged transactions, can I see how the potential profit can be characterized as de minimis. Transactions in Issue I would hold that the repo involved in the New York Hanseatic (NYH) transaction and four of the repos to maturity lacked economic substance but that the remaining repos should be respected for Federal income tax purposes because they were purposive borrowings. Although the instant case involves 11 T-Bill purchases, all but the NYH purchase entailed two or three separate repos.7 An initial repo financed each such purchase, and subsequent repos were refinancing arrangements, with each such purchase ultimately refinanced with a repo maturing on the same date as the corresponding T-Bills (a repo to maturity). All repos, including that involved in the NYH purchase, involved a separate negotiation of term and interest rate. Because each repo was a separate financing arrangement, I would examine each repo for economic substance. Goldstein v. Commissioner, 364 F.2d at 734 (“The deduction is proper if there is some substance to the loan arrangement beyond the taxpayer’s desire to secure the deduction.”) (Emphasis supplied.) All of the initial repos except that involved in the NYH purchase had economic substance. Although those 10 repos each bore an interest rate higher than the yield of the corresponding T-Bills, they nevertheless enabled GSDII to acquire T-Bills and stand to benefit from favorable interest rate differentials, known by the market as “carry,” on refinancing repos. The fact that repo rates did not decline as far as expected by GSDII does not detract from the fact that the potential for profit existed when GSDII made the 10 T-Bill purchases and entered into the initial repos. The fact that the 1982 purchases resulted in a net profit illustrates that the 10 T-Bill purchases in issue (1981) had potential for profit, at least initially. The majority, in fact, acknowledges profit potential available to one transaction by stating, “GSDII would have profited from the transaction if the interest that it owed J&L under the repos had been less than the discount on the purchased T-Bills.” Majority op. at 745. Four of the T-Bill purchases involved “intermediate” repos that were entered into after initial repos and prior to the repos to maturity (repo with Stuart Bros, for $70 million, repos with Newcomb Securities Corp. for $75 million and $80 million, and repo with Jesup & Lamont Holding Co. for $80 million). Those repos, like the initial repos, had economic substance because they placed GSDII in a position to profit from future carry. Finally, six of the repos to maturity (repos with Jesup & Lamont Holding Co. for $60 million, $80 million, $75 million, and $25 million; repo with Newcomb Securities Corp. for $80 million; and repo with Cowan & Co. for $30 million) had economic substance. Those repos had carry and enabled GSDII to recover partially losses suffered from the unfavorable interest rate differentials of prior repos. I do not disagree with the majority’s conclusion that the repo used to finance the NYH purchase and the remaining repos to maturity lacked economic substance. I also do not disagree with the majority’s application of the determined additions to tax with respect to those repos as they did not afford GSDII any potential profit, but merely added to its net loss from the transactions. I also agree that petitioners should not be charged with T-Bill interest income attributable to those repos. The majority states, “Although one might argue that GSDII now owned the T-Bill and it could hold the positions until repo interest decreased, the situation in form and substance is no different from that in Goldstein.” Majority op. at 762. That statement is an unsupported conclusion. Rather than respond to an argument which I consider to have merit, the majority simply incants “Goldstein” and leaves for the reader the task of refuting petitioner’s argument and figuring out why the transactions in issue are “in form and substance” the same as those in Goldstein. In Goldstein, the Second Circuit placed much emphasis on computations of the taxpayer’s advisor which projected an economic loss of $18,500 and tax benefits in excess of that amount. 364 F.2d at 739. The court, after disagreeing with our conclusion that the transactions in that case were fictitious, concluded, “The Tax Court was justified in concluding that petitioner entered into the * * * transactions without any realistic expectation of profit and ‘solely’ in order to secure a large interest deduction.” 364 F.2d at 740 (emphasis supplied). The absence of prearranged loss in the instant case makes Goldstein inapplicable to the initial repos, the intermediate repos, and the repos to maturity providing carry (all of which were purposive transactions). The majority acknowledges that six of the repos to maturity were at a lower interest rate than the corresponding T-Bills, i.e., the repos provided carry. Majority op. at 763. The majority fails to explain, however, why such borrowings were purposeless within the meaning of Goldstein. Instead, the majority leaps forward to the repos to maturity which I agree lacked substance, i.e., those which merely added to GSDIl’s net loss, and states, “The remainder of the repos were even more clearly without substance.” Majority op. at 763 (emphasis supplied). I find the foregoing statement a tacit admission that the initial repos, the intermediate repos, and those repos to maturity providing “carry” did have tax-independent purpose, and that only “the remainder of the repos” fairly can be characterized as purposeless.8  The majority’s statement, “Accordingly, all eleven series of repos, at some point prior to the end of 1981, resulted in fixed losses from T-Bill transactions, with the minor exception that some of them had some amount of carry which partially reduced losses” (majority op. at 763-764), is factually inaccurate. Only the repos to maturity fixed the amount of the net loss on each transaction. Each repo is a separate transaction subject to negotiation under then prevailing market conditions, i.e., at interest rates then prevailing. Furthermore, if all repos lacked economic substance, regardless of carry or the potential for profit through favorable refinancing, I do not understand why the majority sets forth, in a table, the negative interest rate differential attributable to the four repos to maturity which I agree lacked substance. Majority op. at 764. The remainder of the majority opinion suggests that it is irrelevant whether or not a particular repo cost GSDII more in interest than it enabled GSDII to earn from T-Bill interest income. The majority opinion is self-contradictory when it states, “Although the transactions were not. prearranged as between GSDII and the contra-parties, the transactions were planned and arranged by GSDII to appear regular and, at least with respect to the 1981-82 transactions, to have a fixed loss in an amount approximating the up-front payments to contra-parties.” (Emphasis supplied.) The majority does not explain, nor do I understand, how a transaction can provide for a “fixed loss” and yet not be prearranged. The majority must concede that, except for the NYH transaction, the transactions in issue were not prearranged ab initio — they resulted in a net loss only because interest rates did not drop as far as anticipated by GSDII. In that regard, I take issue with the majority’s finding that Price Waterhouse “treated the transactions in issue normally and without questioning their form.” Majority op. at 749. The Price Waterhouse report specifically finds that GSDII was “exposed to market risk.” In numerous portions of the majority opinion, even in the findings (majority op. at 745), reference is made to the deferral of income facilitated by the transactions in issue. E.g., “Distortion of taxable income occurs by allowing deductions for repo interest in a year prior to the year in which T-Bill income is recognized.” Majority op. at 765. See also majority op. at 752 and 759.9 It is evident from the majority opinion that deferral is the majority’s real concern with the transactions in issue. As the majority opinion concedes, prior to statutory changes in 1984, such deferral was permitted by the operation of section 454(b). That Congress delayed in closing a “loophole” should not lead us to depart from settled principles respecting economic substance. Secured Loans or Forward Contracts Because the majority holds that none of the repos had economic substance, it does not address the issue of whether the repos were, in fact, financing arrangements. Because I would hold that some of the repos should be respected for Federal income tax purposes, the issue must be addressed. We also did not need to reach the issue in Price v. Commissioner; 88 T.C. 860, 865 n. 9 (1987), but articulated it as follows: A controversy exists as to whether when one purchases securities from another and simultaneously enters into a repo transaction with the seller the transaction should be characterized as a secured loan transaction (as petitioners * * * contend) or as a purchase with a forward contract for sale (as respondent contends). * * * Petitioner argues that the repos were, in fact, secured loan agreements and that GSDII, as an accrual basis taxpayer, is entitled to deduct interest accruing under the repos over the period they were outstanding from November 1981 to January 1982. Respondent counters by arguing that the repos were not financing arrangements but, instead, forward contracts for purchase of the securities. Accordingly, the expense associated with the interest element of a repo should be deductible not as accruing interest expense, but as loss from the sale of a security at the time the forward contract is closed on the maturity date of the repo. By its terms, each repo in issue consisted of (1) an immediate T-Bill sale by GSDII to a contra-party at a specific price, and (2) an agreement by GSDII to repurchase in the future identical T-Bills from the contra-party at the first purchase price plus a specific amount of interest. In form, then, a T-Bill repo is a sale of T-Bills today and an agreement to repurchase T-Bills at a later date. Respondent’s forward contract argument is that the first leg of the T-Bill repos, i.e., the T-Bill sales, was cancelled in the instant case by GSDH’s T-Bill purchases, leaving only the second leg of the T-Bill repos, i.e., GSDII’s obligation to purchase T-Bills at repo maturity. The parties to T-Bill repos, however, treat them as loans secured by T-Bills. In re Bevill, Bresler & Schulman Asset Management Corp., 67 Bankr. 557, 594-596 (D. N.J. 1986), discusses how various cases have characterized repos. The District Court in Bevill interpreted securities fraud cases, especially S.E.C. v. Drysdale Securities Corp., 785 F.2d 38, 41 (2d Cir. 1986), as viewing repos as purchases and sales, rather than loans. At about the same time that Bevill was released, however, the Second Circuit, citing its Drysdale case, suggested that the question of whether a repo was a purchase/sale or a loan as yet was unresolved in that circuit. Manufacturers Hanover Trust Co. v. Drysdale Securities Corp., 801 F.2d 13, 19 (2d Cir. 1986). The Second Circuit concluded that it did not need to resolve that issue in order to hold that transactions involving repos were subject to section 10(b) of the Securities Exchange Act and Rule 10b-5 of the Securities and Exchange Commission. The Second Circuit also noted that several other courts had defined a repo as “in essence” or “in substance” a secured loan. Manufacturers Hanover Trust Co. v. Drysdale Securities Corp., 801 F.2d at 19 (citing In re Legel, Braswell Government Securities Corp., 648 F.2d 321, 324 n. 5 (5th Cir. 1981); United States v. Erickson, 601 F.2d 296, 300 n. 4 (7th Cir. 1979); S.E.C. v. Miller, 495 F. Supp. 465, 467 (S.D.N.Y. 1980); and Ehrlich-Bober & Co. v. University of Houston, 49 N.Y.2d 574, 404 N.E.2d 726, 728, 427 N.Y.S.2d 604, 606 (1980)). The court in Bevill, after stating that repos are hybrid transactions which do not fit neatly into either a secured loan or purchase/sale classification, held that the repos therein, for purposes of bankruptcy law, were contracts for a current sale of securities and repurchase at a future date, not loan agreements. 67 Bankr. at 596-597, 598. Accord In re Residential Resources Mortgage Investments Corp. 98 Bankr. 2, 23 (Bankr. D. Ariz. 1989). The court in Bevill also mentioned what it described as “tax cases” relating to “repurchase agreements,” noting, however, that the transactions in those cases were not traditional repos. 67 Bankr. at 594. Those “tax cases”— First American National Bank of Nashville v. United States, 467 F.2d 1098 (6th Cir. 1972); Union Planters National Bank of Memphis v. United States, 426 F.2d 115 (6th Cir. 1970); and American National Bank of Austin v. United States, 421 F.2d 442 (5th Cir. 1970) — involved arrangements between banks and municipal bond dealers whereby a bank would “buy” municipal bonds and then resell the bonds to the dealers or the dealers’ customers at the bank’s purchase price. As compensation for the banks’ efforts, they were entitled to the interest accruing on the bonds while they “owned” the bonds. In each of the three cases, the court held that the bank did not bear the risk of fluctuations in the bonds’ market value, so that the bank was essentially a lender and was not entitled to be treated as owning the bonds and receiving interest on the bonds that was tax-exempt under section 103. 467 F.2d at 1101; 426 F.2d at 118; 421 F.2d at 453. The opinion in Bevill cited no other cases involving characterization of repos for purposes of Federal income taxation, and I am not aware of any cases deciding whether repos like those in issue should be treated for Federal income tax purposes as secured loans or as a sales/repurchases of securities. I do believe, however, that the municipal bond repurchase agreement cases under section 103 are suitably analogous. In Union Planters National Bank of Memphis v. United States, supra at 118, the Sixth Circuit stated: In cases where the legal characterization of economic facts is decisive, the principle is well established that the tax consequences should be determined by the economic substance of the transaction, not the labels put on it for property law (or tax avoidance) purposes. E.g., Commissioner of Internal Revenue v. P.G. Lake, Inc., 356 U.S. 260, 266-267, 78 S. Ct. 691, 2 L.Ed.2d 743 (1958); Gregory v. Helvering, 293 U.S. 465, 55 S. Ct. 166, 79 L.Ed. 596 (1935). “In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities * * * .” Helvering v. F. & R. Lazarus & Co., 308 U.S. 252, 255, 60 S. Ct. 209, 210, 84 L.Ed. 226 (1939). The true substance of a T-Bill repo is that the purchaser/ reseller (one of the contra-parties herein, who Eire analogous to the banks in the municipal bond cases), although nominally the owner of the T-Bills during the duration of the repo, does not bear any risk of a decline in the T-Bills’ value and does not benefit from any increase in their value. The purchaser/reseller is entitled merely to the price it originally paid (i.e., the principal it “lent”) plus interest on that price as compensation for the use of its money. Thus, the purchaser/reseller cannot be said to have purchased any T-Bills for Federal income tax purposes, where it has acquired none of the benefits or burdens of ownership of those T-Bills. Grodt & McKay Realty, Inc. v. Commissioner, 77 T.C. 1221, 1237-1238 (1981). Instead, the purchaser/reseller has loaned the amount of the stated purchase price to the seller/repurchaser (GSDII herein, and the municipal bond dealers in the municipal bond cases) in exchange for a payment which is in the nature of interest. Such characterization also comports with the market’s view of repos as secured loans. I grant that, while a repo is open, the purchaser/reseller can sell the T-Bills acquired via the repo; however, any profit or loss on such a sale would be negated by an offsetting loss or profit when the purchaser/reseller is forced to acquire identical T-Bills to resell to the other party upon the repo’s maturity. Accordingly, I would hold that the form of the T-Bill repos in issue does not control and that the economic substance of the repos is that of secured loan transactions rather than purchases/resales. Accordingly, the repos should be treated as loans for Federal income tax purposes.10 See Commissioner v. P.G. Lake, Inc., 356 U.S. 260, 266-267 (1958); Union Planters National Bank of Memphis v. United States, supra at 118. That petitioners, not respondent, are contending that the substance of the transactions should govern, should not alter our conclusion. In one of the cases cited in Union Planters National Bank of Memphis, Helvering v. F. & R. Lazarus & Co., 308 U.S. 252, 255 (1939), the Supreme Court permitted the taxpayer to recharacterize a sale as a mortgage and thereby retain depreciation deductions, over the Commissioner’s objection. Nor do I believe that the rule in Danielson v. Commissioner, 378 F.2d 771 (3d Cir. 1967), revg. and remanding 44 T.C. 549 (1965), binding a taxpayer to the terms of his agreement in the absence of mistake, undue influence, fraud, duress, or other circumstances warranting alteration or rescission of the agreement, applies in the instant case. That rule does not apply when an agreement is ambiguous. Smith v. Commissioner, 82 T.C. 705, 713-714 (1984). In the instant case, the repo agreements, although labeled sale and repurchase agreements, contained terms indicative of financing arrangements; specifically, the agreements contained interest rates and maturity dates.11  Moreover, GSDII did not choose the form of the transaction. Rather, that form was dictated by industry practice. The market cast repos as sales/repurchases rather than loans for a number of tax-independent reasons. For example, regulations prohibited certain investors, including municipal bodies, from making loans to securities dealers. Casting the transactions as sales/repurchases permitted avoidance of those restrictions. Recently, in Anchor National Life Insurance Co. v. Commissioner, 93 T.C. 382, 404 (1989), we held that “Certificates of Contribution” evidenced loans by the parent of an insurance corporation, not capital contributions, noting that the term was “nomenclature common in the insurance business to refer to a debt.” Thus, business usage of terms must be taken into account. The foregoing could be the reasons respondent did not assert that the Danielson rule applies in the instant case. For the foregoing reasons, I would hold that the repos in issue were financing arrangements and that GSDII is entitled to deduct repo interest accruing in 1981 on those repos that had economic substance. As far as the interest income from the T-Bills in issue, I would hold that it should not be included in petitioners’ 1981 taxable income because section 454(b) requires that discount on the T-Bills be included in taxable income only upon the T-Bills’ maturity in 1982. That section provides that in the case of a short-term obligation of the United States which is issued and payable at a fixed maturity date without interest (such as a T-Bill), any discount does not accrue until the maturity date, unless the obligation is earlier sold or otherwise disposed of. Because I would find that GSDII owned the T-Bills purchased in November and December of 1981, I also would hold that section 454(b) provides that interest income from those T-Bills is not includable in GSDII’s income until the maturity date of those T-Bills in January 1982. Conclusion The majority finds “no essential difference between Goldstein and this case.” Majority op. at 768. I respectfully disagree. In Goldstein, the taxpayer’s advisor had projected, prior to the transactions in issue in that case, an economic loss that would be more than offset by projected tax benefits. In the instant case, by contrast, GSDII anticipated an economic profit, and the potential for such profit existed when the T-Bills were initially purchased. The difference is critical and requires that we refrain from applying the economic substance doctrine to the purposive repos. Although the majority states, “The potential for ‘gain’ here, however, is not the sole standard by which we judge” (emphasis in original), that is the standard under Goldstein, to which the majority purports to be faithful. I believe the majority in fact judges the transactions solely in reference to tax benefits in order to deny what it perceives to be excessive tax benefits. When Congress eliminated the deferral opportunity by enacting section 1281 and other special rules for debt instruments in 1984, it acknowledged that under pre-1984 law, “interest on indebtedness incurred to purchase or carry obligations eligible for an exception [such as section 454(b)] can be deducted currently against ordinary income to generate a one-year tax deferral.” H. Rept. 98-861 (Conf.) (1984), 1984-3 C.B. (Vol. 2) 61. Congress enacted sections 1281 through 1283 to eliminate the 1-year mismatching of income and expense for transactions like those in issue, but Congress chose not to make those provisions applicable to T-Bills and similar obligations that were acquired before 1984. Pub. L. 98-369, sec. 44(d), 98 Stat. 494, 560. It is not within our province to do what Congress failed to do or elected not to do. Hanover Bank v. Commissioner, 369 U.S. 672, 688 (1962). For the foregoing reasons, I respectfully dissent with respect to the purposive repos. Kórner, Cohen, Clapp, Swift, Jacobs, and Whalen, JJ., agree with this dissent   By adopting this new test it appears that a new grandchild has been bom in the name of Mrs. Gregory. See Gideon, “Mrs. Gregory’s Grandchildren: Judicial Restriction of Tax Shelters,” 5 Va. Tax Rev. 825 (1986).    See “Mrs. Gregory’s Grandchildren: Judicial Restriction of Tax Shelters,” supra at 837-838. Mr. Gideon suggests a de minimis test is feasible, but also would compare the potential profit to investment rather than tax benefits.    I recognize that GSDII’s investment could be considered greater than this amount because it was liable to the contraparties for any deficiencies in repo principal and interest after application of the T-Bill proceeds and haircuts. GSDII’s liability, however, was limited because the T-Bill proceeds could be used to satisfy its obligation and the haircuts represent at least an approximation of GSDII’s exposure as a result of the transactions.    Such an assumption is necessary because tiie record does not disclose the amount of the haircuts for the 1982 transactions.    008 percent or $55,964.29/$69 million.)    (.00008 X $360 million = $28,800 and $18,380.61/$28,800 = 64 percent)    The purchase from NYH involved a single repo to maturity.    The holding with respect to the repos with carry (a positive interest rate differential) also contradicts our previous holding that loans facilitating profitable transactions have economic substance. Mortensen v. Commissioner, T.C. Memo. 1984-600.    The majority opinion incorrectly states that GSDII claimed interest deductions attributable to the transactions entirely in 1981 while reporting interest income entirely in 1982. Majority op. at 752 note 7. GSDII reported interest expense using the accrual method of accounting. Majority op. at 739, 758. Thus, interest expense attributable to the repos was claimed in both 1981 and 1982.    One of respondent’s own rulings, Rev. Rul. 77-59,1977-1 C.B. 196, is in accord with such a view, ruling that repurchase agreements for U.S. Treasury obligations are considered to be loans and that income to the lender (the purchaser/reseller) qualifies as interest income. Respondent does not offer any argument that the repurchase agreements discussed in that Revenue Ruling should be treated differently than T-Bill repos.    In Coulter Electronics, Inc. v. Commissioner, T.C. Memo. 1990-186, we held that the Danielson rule did not preclude the taxpayers from treating “sales” of leases as pledges of security for loans, in view of loan-type terms in the “sale” agreements. We stated: In the instant case the original agreement * * * as well as the assignment forms used to transfer the leases * * * contain terms which denote a sale. Yet the original agreement and its subsequent amendments contain numerous provisions which are inconsistent with a sale and more like the terminology usually found in financing arrangements. * * * Therefore, neither Danielson nor the strong proof doctrine is applicable to this case. Smith v. Commissioner, supra. [59 T.C.M. 350, 364, 59 P-H Memo T.C. par. 90, 186 at 851-852],