Estate of Martin M. Melcher, Etc. v. Commissioner of Internal Revenue, Estate of Martin M. Melcher, Etc. v. Commissioner of Internal Revenue

Appellants Doris Day Melcher and the estate of her deceased husband, Martin M. Melcher, appeal parts of a Tax Court decision assessing tax deficiencies for the years 1953 through 1956 and finding an overpayment for the year 1957. In those years Martin Melcher and his wife filed joint tax returns, which included income and deductions claimed on account of a tax avoidance scheme, a Livingstone-type transaction, in which the taxpayers claimed deductions for large' interest payments for an alleged indebtedness incurred in connection with the “purchase” of Federal Land Bank Bonds, and claimed a capital gain at the time the bonds were sold. This court has consistently held that in a Livingstone-type transaction there is no real purchase of bonds, no genuine indebtedness incurred, and consequently, no deductible interest expense created. See Cahn v. Commissioner, 358 F.2d 492 (9th Cir. 1966); Williams v. Commissioner, 323 F.2d 656 (9th Cir. 1963); MacRae v. Commissioner, 294 F.2d 56 (9th Cir. 1961), cert. denied, 368 U.S. 955 , 82 S.Ct. 398 , 7 L.Ed.2d 388 (1962); Kaye v. Commissioner, 287 F.2d 40 (9th Cir. 1961). Appellants concede that the Tax Court properly disallowed use of…